Automate Your Pension

It’s quite clear that we are all our own worst enemies when it comes to saving for the future or for eventual retirement. The desire to spend for needs and wants today overrides the prudence of setting aside a few shillings periodically.

There are so some of the common clichés about good savings:

They are sensible, but not always easy to do. One solution so this is to automate the savings process. This is to take the decision out of our hands. Stop trying to save by writing a cheque or taking cash to put in a saving account at the bank. Automating savings  saves the hassle and removes this difficult decision and choice to sacrifice today for a better tomorrow. (Don’t Kulegalega!)

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Automate, and lock away, your pension.

If someone is employed, their employer can deduct money on behalf of an employee through payroll and add it to a registered pension scheme. This has an extra benefit of being tax-free up to Kshs 20,000 (~$200) or 1/3 of salary per month. If someone is self-employed they can have their bank deduct a fixed amount each month via a standing order and send it to the pension company. One should use a bank that allows a free standing order, or one that it reasonably low in cost (e.g Kshs 100) for the transfer every month.

The amount channeled to pensions as savings (whether it’s Kshs 3,000 or 5,000 or 20,000 per month) should be a comfortable one that if someone loses their job, they won’t want to suspend making savings installments immediately, People often want to stop payment or to liquidate their savings for emergencies, or other reasons, and some pension plans are now adding insurance windows so that people can draw money for emergencies, without interrupting their savings.

Mobile phone companies intermediation in the financials sectors has brought financial products  within reach of millions of Kenyans that traditional commercial banks were not serving.  This is now coming to the savings markets too, and with Safariom’s M-Pesa, one can lock an amount periodically by sweeping up the balance in one’s M-pesa account. For now that money goes to a fixed deposit account, not a pension,  but that should change in the future.

Over Kshs 20 billion of payments are made on Safaricom’s Lipa Na M-Pesa service each month, , while Equitel, Equity Bank’s phone payment platform,  processed Kshs 62.4 billion worth of transactions in the first quarter of 2016. Hopefully more of these payments will go towards savings and pensions, and preferably through one of the Retirment Benefit’s Authority (RBA) registered service providers.

$1 = Kshs 100