Category Archives: RBA

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.