It’s quite clear that we are all our own worst enemies when it comes to saving for the future or for pension schemes and 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:
- Use the power of compounding interest.
- Put your money to work for you.
- Spend less than you earn.
They are sensible, but not always easy to do. One solution to 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!)
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 is 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 financial sector 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 Safaricom’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 Retirement Benefit Authority (RBA- registered) service providers.
$1 = Kshs 100