By M&M Reporter
The proposed changes to the pensions law barring workers from accessing their pensions until they reach retirement age have been welcomed as positive to the contributors as well as the budding pension industry
Pension administrator, Emwealth Financial Services says the changes to the law will improve Kenyan’s income replacement rate.
“We see the latest directive as a move that will improve Kenyan’s income replacement rate. This will ensure most employed people will have sufficient income at the point of retirement,” said Enwealth Financial Services CEO, Simon Wafubwa during a briefing on the new changes contained in the Finance Bill 2019/2020 earlier today.
RBA recently amended the act to stop anyone changing jobs or leaving formal employment before age of 50 from accessing their employers’ contribution and accrued income from the same. Employees will only be able to access their own contribution. This is one among different changes introduced in the act.
Previously, workers could tap into their own contributions as wwwell as 50 percent of their employer’s contribution. Consequently, the pensions industry experienced massive outflows of benefits and abuse of retirement savings owing to the prevailing structure of the labour market where individuals frequently change employment. This meant many people retire with little or no savings.
A 2018 Retirement Confidence survey conducted by Enwealth and Strathmore University found that the average income replacement ratio (the percentage of one’s pre-retirement income required to maintain the same standard of living in retirement) for Kenyans stood at around 30% against a global recommendation of 75%.
“This will also increase the pool of funds available for public and private investments such as expansion of infrastructure and affordable housing as the investment asset classes for pension schemes are expanded. It will further deliver better returns for retirees and overall economic development,” added the Enwealth CEO.
He was speaking during a stakeholder briefing held today in Nairobi where the pensions provider presented a closer analysis of the impact of the regulatory changes and how they will impact retirement benefit schemes.
Enwealth further noted regulatory changes in the Umbrella Benefits scheme allowing for additional voluntary contributions by members for the purpose of funding a medical fund to be utilized after retirement. Under the scheme members will now be able to contribute both for retirement and a medical plan.
A trend analysis points to a possible worsening of poverty in old age with huge social implications in a country where the traditional structures of caring for elderly people are disintegrating.
The Enwealth Retirement Confidence report indicated that 85 percent of Kenyans were worried about inability to meet rising medical expenses during retirement. While the shortfalls of public pension plans have been extensively discussed, much more awareness needs to be created on the importance of preparing for lifestyle diseases that are largely driven by aging.
Dr. Shem Ouma, a representative from RBA said that, “The scheme comes on the backdrop of increased healthcare costs, particularly for old age which is fast becoming a nightmare to the pension management industry. RBA is keen on ensuring that Kenyans are not just guaranteed a stable income in retirement, but also have a reliable medical cover.“
“Scheme rules shall provide that a member may transfer a portion of the member’s benefits to a medical cover provider where the member has been unable to build up a sufficient post-retirement medical fund from additional contributions,” Regulation 22,1B, another new insertion in the act.
The new regulations have also barred retirement schemes from creating and maintaining a reserve funds that exceeds 5% of the total value of the scheme fund. This means members will have access to better returns.
Trustees attending the forum further discussed reforms and incentives that the government needs to put in place to ensure more workers especially in the informal sector contribute towards a dignified retirement income.