Embracing change to ensure comfortable life for retired population

The removal of the stay of implementation of the NSSF Act of 2013 marked a significant turning point in the realm of retirement savings in Kenya. PHOTO | SHUTTERSTOCK

The recent removal of the stay of implementation of the National Social Security Fund (NSSF) Act of 2013 marked a significant turning point in the realm of retirement savings in Kenya.

Looking at the current data on retirement savings, about 13.9 million of the Kenyan workforce had no form of retirement savings plan, a significant proportion coming from the informal sector.

This glaring large proportion underscores the pressing need to address the savings gap as it threatens the financial well-being of a significant portion of our population in their sunset years.

An increase of the NSSF statutory contribution to 12 percent of the pensionable salary for formally employed workers offers a remarkable opportunity for employees to bridge the savings gap as well as set a standard for basic income floor in retirement.

Enactment of the new contribution rates not only brought about retirement policy development and improvement but also ensured increased retirement savings coverage, which will reduce poverty in old age.

In the spirit of ensuring that Kenya is a progressive market, we then consider that the new legislative application has increased automatic enrolment and introduced retirement income where there was none before by altering benefit release from provident to pension, which ultimately provides for steady retirement income plus the spread of benefit throughout the lifetime of a retiree.

Participating staff are also being offered an opportunity to determine their investment and management partner for tier two of the NSSF monthly contribution.

This new inclusion presents a significant opportunity for privately registered retirement funds to absorb these funds within their existing solutions.

The goal of this provision is to allow the maximisation of investment return, and portability of benefits throughout one’s working lifetime, via selection of your preferred fund manager.

Addressing the savings gap should be a universal responsibility whereby the government and key stakeholders must take up the mantle to raise awareness in the general population about the importance of retirement benefits and empower them to make informed decisions about their financial future; not just within their client portfolio.

Given the correct information, the wide gap between those who save for retirement and those who do not is likely to reduce significantly.

The financial rule of thumb indicates that accumulated savings when converted to a retirement income should amount to at least 75 percent of one’s total income prior to retirement to maintain a desired lifestyle.

While true, ensuring long-term financial security during this period is a joint effort of both the saver and the insurance firm.

In the face of current economic fluctuations and headwinds such as increased inflation and interest rates, insurance firms have a crucial role in securing long-term financial stability by offering diverse investment options, diversifying asset classes, and adopting transparent practices that promote the growth of the fund.

The writer is the head of pensions at Old Mutual Group -Kenya.