By Christine Karoki
NAIROBI, Kenya, July 14 – The recent removal of stay of implementation of the National Social Security Fund (NSSF) Act No 45 of 2013 marked a significant turning point in the realm of retirement savings in our country.
Looking at the current data on retirement savings, about 13.9 million of the Kenyan workforces had no form of retirement savings scheme, a significant proportion hailing 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 upon retirement.
Increase of the NSSF statutory contribution to 12% of the Pensionable Salary for formally employed staff offers a remarkable opportunity to employees to bridge the savings gap as well as set a standard for basic income floor in retirement.
The enactment of the new contribution rates not only brough about retirement policy development and improvement but also ensured increased retirement savings coverage which will aim to reduce generally occurring old age poverty.
In the spirit of ensuring that Kenya is a progressive market, we then consider that the new legislative application has increase 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 spread of benefit throughout the lifetime of a retiree.
Participating employers are also being offered the 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 maximization of investment return, and portability of benefits throughout ones working lifetime, through selection of your preferred fund manager.
By extension, as a country, in our efforts to bridge the savings gap, we must pay special attention to the informal sector, which constitutes a significant portion of the workforce.
With approximately 14 million people engaged in informal employment, there is a need for innovative solutions to cater to their unique needs.
Avenues currently catering to the MSME’s, medium corporate and Individuals are the Umbrella and Individual retirement benefits schemes.
By offering these solutions we can provide platforms that enable individuals in the informal sector to save effectively and secure their retirement, in line with the formal sector employees.
Addressing the savings gap should be a universal responsibility whereby the government as well as, Key stakeholders in the finance industry, especially insurance firms fund managers and fund administrators, 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.
Empowered with 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% of one’s total income prior to retirement to maintain a desired lifestyle.
While true, ensuring long-term financial security during this Controlled Disclosure period is a joint effort of both the saver and the insurance firm.
In the face of current economic fluctuations and headwinds like 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 growth of the fund.
Furthermore, the bouquet of services can be layered to provide post-retirement solutions, launch knowledge campaigns to educate pensioners and introduce specialized medical funds like Old Mutual’s Afya Imara for seniors.
These measures enhance the overall retirement experience and address evolving customer needs.
Adapting to regulatory changes is essential for insurance firms to remain agile and proactive.
By embracing technology and innovation, we can create flexible platforms as an industry that accommodates customer needs and provide personalized solutions.
Proactivity is vital in an ever-evolving landscape, ensuring that we stay ahead of the curve and continue to serve our customers effectively.
Therefore, the reinstated NSSF Act represents a significant milestone in our mission to bridge the savings gap and secure the financial future of individuals across our great nation.
We must seize this opportunity to educate, innovate, and offer comprehensive solutions that address the diverse needs of our customers.
By working together, we can ensure that pension savings become a vibrant and thriving aspect of our society, providing all financial security and peace of mind.
The writer is the Head of Pensions at Old Mutual Group -Kenya
