Tag Archives: kulegalega

Choosing a Pension Plan

Whether you’re formally employed at a bank or large company, a factory worker, tenderpreneur, SME/ business owner, matatu guy, farmer etc. it really doesn’t matter what you do as long as you choose a pension plan, and start investing and saving as soon as possible.

If you want to retire with money you need to pick a financial partner. You are probably in some investment fund, but is it a pension fund? RBA registered pension plans usually have the words pension or retirement in the name. Also, avoid insurance companies because they try and enhance these with other insurance benefits and it gets confusing, and takes away from the simple nature of retirement.

Collectively, at the beginning of the year, there were about 162,000 Kenyans who had placed about Kshs billion saved in individual plans. RBA had registered 43 retirement schemes for individuals from providers such as Alexander Forbes,  Amana, Apollo, British American, CFC, CIC, Co-op Trust, Eagle Africa, GA Life, ICEA, Kenindia, CPF, Octagon, Old Mutual, Sanlam, UAP and  Zimele.

These are almost all standard and they give members annual statements and hold annual general meetings to brief members on how the funds are performing. Also:

  • Depending on your current income, you may want some flexibility in terms of a plan that allows irregular deposits, had affordable investments and allows payments by standing order or mobile money (m-pesa)
  • One important consideration is also the cost of the fund e.g. Zimele quotes 2.5% per year for the personal pension plan and 2% for their guaranteed pension plan. Check with any plan what the cost is, and avoid those who charge an upfront cost for joining (if any).
  • Many of the insurance ones give the option of a guaranteed return or a higher one that depends on the market. As of 2015 pension industry fund assets were invested in government bonds (30%), followed by quoted securities (23%),  then property (19%).
  • Many allow employers to co-invest with their employees, effectively doubling their retirement savings every month.
  • There was a time when the minimum to join was about Kshs 5,000 but now the minimum for many (other than Mbao) is Kshs 200 or 500 per month. This makes them easy to join, but remember you will harvest what you invest, and this amount should be increased as s high as, and as soon as possible. There’s tax relief on pension savings of up to Kshs 20,000 per month in Kenya.

So which ones to pick? Here are 5 picks in no particular order:


It’s simple to apply for a pension plan

  1. Blue MSMEs Jua Kali Individual Retirement Benefits Scheme (More on the Mbao Pension Plan under which one can save as little as Kshs 20/=). According to RBA, Mbao has the largest membership of about 75,000 members; its big attraction is its informality.
  2. Jubilee Insurance Personal Pension Plan. This is the largest individual plan in terms of assets, and its 17,000 members have saved over Kshs 7 billion.
  3. Alexander Forbes (Vuna Personal Pension Plan) (I use this one)
  4. Octagon Personal Pension Scheme: No, minimum, savings, and gets 10% a year with an income draw-down option.
  5. UAP Life Assurance Individual Retirement Benefits Plan. This pension can be combined with life assurance so that on premature death, combined benefits of accumulated savings and life assurance becomes payable.

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

$1 = Kshs 101

How to Secure Your Retirement

The last few years have been very trying to many retirees and their future is still in limbo. Some had their retirement funds that were in banks that collapsed, some bought insurance policies in companies that have had difficulties making payments on matured policies.

The Retirement Benefits Authority (RBA) oversees 1,000 individual schemes at companies and 40 others that are available to individuals (PDF) to the public. It’s important to note that insurance policies are not all retirement plans. Some insurance companies have RBA-approved  retirement schemes, but they usually have “retirement” or “pension” in the names. Any other may not have the features and protections for retirees. The goal at the RBA is to secure funds for retirees have them invested and be paid as and when they are called for to pay retirees. They do this through licensing a network of professional companies to operate retiree plans, and an RBA-licensed scheme relies on a system of checks and balances with separate roles of different players. The players include:


  • Trustees; who manage schemes for retirees best interests of the beneficiaries,
  • Fund Managers: who prudently invest funds to grow
  • Custodians: Hold documents for the retirees fund
  • Administrators: who keep records and communicate with members
  • Actuaries

For the first two decades after independence, corporates jobs had assured retirements. They were defined as permanent and pensionable. Companies invested in their employee’s retirement and the amounts to be paid out at retirements (defined benefits) were guaranteed.

But those jobs are no more. These days if companies have pension schemes they are all defined contribution – what an employee sets aside to save and invest is what earns him/her funds when they retire, or even if you need a portion of it before retirement age e.g. for a mortgage.

The statutory retirement body, the National Social Security Fund has a long chequered history. But through working with the RBA they have moved towards becoming a proper pension body with the most important steps being that they have appointed independent custodians and investments managers. The days when most of their portfolio was in questionable land or members funds collapsed with stockbrokers or weak banks should now be behind them now. But NSSF has just 1.7 million members and over Kshs 165 billion in assets as at June 2015. And in a country of 43 million people, if half of them are under the age of 18, it still means there are  a few million working adults who probably have no pension plan for themselves who will one day get old and wonder who is going to take care of them

There are many plans all over, that allow different payments or levels of investment, and some are even shariah compliant schemes. Take up one of them. Don’t #kulegalega

If you have any questions are retirement benefits in Kenya, send an email to bankelele@hotmail.com

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)