Category Archives: retirement

Retirement Is Guaranteed, Happiness Is a Choice

Last week I met older two men at two different meetings. One is 80 years old. He lives comfortably in a house he bought almost 20 years ago. It was a struggle to buy into that part of town, but he and his wife managed. He is in good health and was talking about winding now an investment that he and his partners, most of who were in retirement, now felt they were too old to manage.

The other was about 65 years ago. He lives in a rural area and travels to Nairobi about once a month to see his doctor. He is comfortable and gets assistance from his children who are all working and who take turns supporting their parents by paying for different things.

Both men are comfortable, but they are an anomaly in Kenya. One of them told me that happiness is a choice. And with retirement, you can have the choice to be happy. Health permitting and long life permitting. And the reality is that for many Kenyans in retirement, life is not a pleasant situation.

I’d like to be either of them, at 65 and at 80. But they are an anomaly. We probably all have phone calls that we ignore, and “please call me” messages that we know are requests to send mobile money to relatives in a rural area. Those from older relatives are often to request amounts that are relatively small – Kshs 300/= or Kshs 500/=. We should help those people. What is sad is to get repeated requests from people who used to be “high flyers” who perhaps lived in Nairobi, spent a lot, had top jobs, but who probably all, extended themselves too much, made bad decisions, got into alcohol, but ultimately never thought the good times would end, and did not plan for their retirement years.

Sometimes it is not their fault. They relied on others to make retirement decisions for them. Every few weeks you hear or read of stories of old groups of workers who were teachers, railway workers, postal workers who are waiting for terminal dues and are fighting their payments. Their companies are stuck with illiquid assets like parcels of idle land or old buildings that they want to sell to pay their workers.  But sometimes, this doesn’t solve the problem. One of the retirement stories this month was about former postal workers – a property had been sold, after a long court case but now their lawyers wanted 30% of the award as a a legal fee payment.

boat-captainSome of these situations are unfortunate, and some unavoidable. Underlying it all it the reality that we will all grow old, we will all have needs when we are old, and to have happy retirement days, we need to make savings and investment decisions now. I would like to be either of the two men, at 65 and at 80 when in retirement. But I would rather be a sail boat owner at the Kenya Coast (like this guy in Watamu).

This shows another paradox about retirement. By having better health, and living longer, people have to occupy themselves in their old age. The barbershop I go to is run by an old man. He hires kids who cut the hair of customers. He sits in the corner of the barbershop where he also has an m-pesa booth. He collects money after hair is cut and also does the m-pesa transactions himself. When there are no customers, he steps out and chats with people on the pavement and is known by many. He doesn’t seem very popular, and I suspect he probably owns the building too. He works out of habit, to keep himself occupied, not really to support himself, and he is able to do this because of retirement decisions he made years before. You make retirement decisions in time so they are not out of desperation.

This is part of an ongoing series on retirement, dubbed Kulegalega, with the Retirements Benefits Authority.  

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 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:

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!)


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 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

Pensions for Jua Kali, SME’s and Entrepreneurs

Most people only contribute to their pension savings for the period that they are formally employed with an employer that is enrolled them in a registered pension scheme.  But that only covers a small part of the workforce, and limits the periods in which they can save.

For many medium and small businesses (SME) workers, their employers only enrol them in the statutory National Social Security Fund (NSSF)  in which all employees. Until 2014 when the law was revised, contributions towards retirement was a ‘token’  amount of Kshs 400 (Kshs 200 from the employee, matched by the employer) per month. The change in the law allowed employees to voluntarily increase their savings and have the employer match that. The funds could be invested with NSSF in another registered pensions scheme that would presumably outperform the NSSF.

Pensions for self-employed and entrepreneurs.

For entrepreneurs, there are a few individual pension schemes. One of them is Vuna from Alexander Forbes, through which one can make contribution via mobile money, and benefit from extensive financial advice such as how to withdraw funds early or how to apply use pensions savings to make down payments for mortgages. Vuna is designed for entrepreneurs (self-employed), those who do short-term employment (contracts) or for people who work in organizations where no pensions scheme has been established. They recommend a minimum savings of Kshs 5,000 per month Kenyans can save up to Kshs 20,000 tax-free per month).

But a few years ago, the government realized that many young people starting out, or worked in the informal sector were not able to build savings. Either the process of registration was too diffcult, or the minimum amounts required for pension contributions were too high, nor did they have a steady income flow to enable them to participate in the formal pension schemes provided.

So, the RBA worked with Eagle Africa and created the Mbao scheme for (Jua Kali) informal workers. These are people who save irregularly and don’t have large amounts to save – they called it  ‘Mbao’ to refer to the Kshs. 20/= which is the minimum daily contribution that members can make. It was established by the Kenya Jua Kali Co-operative Society as a voluntary retirement savings scheme.. (and) was registered by the Retirement Benefits Authority (RBA) and Kenya Revenue Authority (KRA) (in) October 2009.

With Mbao, one can register on their phone via SMS, add to their pensions, top up their pension using mobile money (M-Pesa or Airtel) and update their details using USSD.  As at the end of 2015, members were making about 31 million in contributions per month.

 ($1 = Kshs 101)

An Intern can be Richer than his Boss

Young Kenyans don’t realize how rich they are. While they face higher unemployment, and older people ‘hold them back’ from higher paying jobs and leadership roles, they have something in their favour that others don’t -, and that’s  “Time!”

With time, they have longer to save for their retirement, and it only requires a very small savings amount. Stats from the Kulegalega campaign, being done by the Retirement Benefits Authority (RBA), show that, if someone saves Kshs 1,000 per month, and that savings investment earns 10% per year, it will be worth over Kshs 2 million after 30 years. This is not another pyramid scheme or a lucky lotto number – it’s real-life math.

 The answer is in the power of compounding interest. The interest they earn each year grows and is reinvested, to magnify the original investment. In the above examples, the savings a young man or woman makes will only add up to Kshs 360,000 (Kshs 1,000 invested 12 times a year, for the next 30 years). But over 80% (Kshs 1.6 million) of the above amount will come investment income and not from the initial contribution.

It’s more important to save when young, than what the amount that you save. An intern in a company should be able to save Kshs 1,000 per month. But, yes there are some who can, and should save much more than Kshs1,000 per month. If the intern has a boss who earns 10 times more than the intern and who saves 10 times more each month, he will end up with slightly more than his intern, because he started later. The intern’s boss will get slightly more than the intern’s Kshs 2 million even if he earns Kshs 100,000, but only starts to save Kshs 10,000 per month in the 10 years before he retires.

Finally, a common mistake people make when they retire is to start a business. RBA stats also show that 90% of business started by retirees will fail within 2 years. Retirement is not the time to start a business. So start investing and taking risks while you’re young and strong, and put something aside every month to be comfortable in retirement.

Plan For Your Retirement

Kenyans have been saving more each year for their retirements. From about Kshs 50 billion in 2000, assets in the retirements benefits industry have risen to about Kshs 814 billion in 2015. However, the Retirement Benefits Authority (RBA) estimates that fewer than 15% of the population will be secure in their old age.

This low number this probably ties in with the people who were employed in formal sectors.   That is people whose employers enrolled them in occupational pension schemes, and made deductions from their salaries, and remitted amounts for their retirement to be managed at statutory (i.e NSSF) or other pension schemes. Most employers only enroll their employees in NSSF; however, it’s not enough to just contribute to the National Social Security Fund (NSSF) (here’s why) if one wants to have a comfortable, decent retirement, one in which they are independent, and able to enjoy their own pursuits.

retire in style

Kulegalega is a campaign that aims to educate and encourage more young Kenyans to start taking charge and enhance their savings and investment, from a young age, and long before they consider retiring.

While access to pensions services, alongside other financial services like banking, remains a challenge, there are now more opportunities to save with secure service providers that are regulated by the RBA.  It’s also important to demystify the idea young people have that they can’t afford to save, or that they will only be able to invest and save when they are older and have risen in the work place and have higher income. It is important to start saving as soon as possible, and get into the habit of saving today, to enjoy tomorrow.