By Albanus Muthoka
One of the many desires of government is for its citizens to live comfortably upon retirement. However, not every country has been proactive enough to provide its citizens with an adequate retirement income. It is astounding that most workers don’t know how much they will need to save for retirement.
A report launched in February by Enwealth Financial Services that assessed how well Kenyans are prepared for retirement revealed that 98 percent of Kenyans expect their lifestyle to be the same or better upon retirement at 57 percent and 41 percent respectively. This is an indication that most Kenyans expect to have accumulated enough wealth to live on after retirement. On the contrary, this remains a wish because Kenyans are hardly saving towards the same. Only 2 per cent said that life will be worse than what it was before retirement.
The National Social Security Fund (NSSF) Act requires registered employers to deduct contributions at source and remit to the statutory pension fund every payroll month. A Kenyan employee in the formal sector is required to part with a minimum of Sh200 on top of which the employer matches, thus Sh400 into an individual’s pension account. An individual joining this scheme at 25 years will save about Sh168,000 before interest after 35 years when compulsory retirement comes knocking at the door. This implies Sh14,000 every month for one year. This quick calculation shows that what workers will have accumulated at retirement is not close to what is needed to meet basic needs.
At this stage when income has drastically shrunk, elderly-related medical expenses tend to dominate household recurrent expenditures leaving families in partial ruin. A different report released in August 2018 by Enwealth on retirement well-being found that at 32 per cent, the highest financial concern of a Kenyan in retirement is on the limited medical cover.
It is therefore sufficient to say that many Kenyans are working far past their retirement age not on voluntary basis instigated by the thought of boredom in retirement, but for lack of sufficient savings.
In 2011, the UK government abolished fixed retirement in the country, which means that employers no longer force staff to quit simply because they have hit retirement age of 65. This clearly indicates that contributions made through the mandatory social security platforms are a drop in the ocean.
Unfortunately, instead of starting early, those not blessed with the muscle to spare much for retirement or for their bloodline have a tendency to compare themselves to those with surplus and subconsciously use that as a reason not to satisfactorily plan for retirement on the pretext of YOLO (You only live once). They satisfy only their immediate needs and claim that it is because of lack of money for future plans and investments.
Nonetheless, this shortfall has spurred many governments to adjust retirement age upwards in an effort to minimize the number of people in the social security system as well as introduced programmes that come to the rescue of certain interest groups. For instance, government in 2005 launched the unconditional Older Persons Cash Transfer Programme (OPCT) with an aim to improve the capacities and livelihoods of older people.
While OPCT remains a considerate initiative, there are only a few opportunities around the world where citizens are given money on a silver platter especially when a government has statutes that amplify the need for saving and when it makes its money through taxation.
In order to encourage pension schemes, the state provides tax relief on contributions made to pension schemes and the growth in their investments. Unlike other investment avenues, starting a pension scheme for employees can be equated to giving them a tax free pay raise. Despite this, the informal sector which is over 83 per cent of the country’s workforce still underappreciates the need to save for retirement.
Those who have found themselves in danger zones during retirement have been handy in providing necessary hindsight and advisory to younger generations. As such, many are supplementing the little they save in the mandatory individual pension account with the highly recommended private ones where they are advised accordingly regarding how much they will need to save to live comfortably upon retirement.
Getting adequate retirement income is like a journey of a thousand miles that requires workers to first be knowledgeable about how much they will need to save for retirement in order to catch-up.
The writer is assistant manager for pension administration & consulting at Enwealth Financial Services Limited.