Annuities now more appealing for retirement

Kenya: Money

Experts say annuities could be a better solution to your retirement investment. PHOTO/Photos.com 

By JEVANS NYABIAGE
Posted  Wednesday, April 15  2009 at  12:54

 

After spending years hard at work, raising a family and building your nest egg, retirement should be one of the most rewarding chapters of your life.

Ideally, it should be an opportunity for spending quality time with children and grandchildren, travelling, pursuing a hobby, embarking on a new vocation.

These are the priorities most would like to concentrate on.

However, for too many people, the uncertainty of an assured and bankable retirement income clouds their sunny picture of time away from work.

With inflation eating away at buying power, taxes eroding interests earned on savings, and the possibility of spending more than two decades in retirement, it is clear that a plan is needed to help secure retirement dreams.

Yet many employers continue to eliminate traditional pensions and retiree benefits such as healthcare, meaning more Kenyans must increasingly rely on personal savings and investments or businesses as the bulk of their retirement income.

Challenges of having sufficient income in retirement are compounded by escalating medical costs.

Worse still, as Kenyans brace for tougher economic times, providers have increased their charges.

As at December last year, the inflation contribution to medical goods and services stood at 15.7 per cent, taking them beyond the reach of many.

The market downturn has also left its mark on the retirement security of many, causing them to re-evaluate their retirement savings and investment strategies.

Early this year, a survey by Alexander Forbes Consulting Actuaries showed that pension schemes lost between 4 to 24 per cent of their value for the year ending December 31, 2008.

That study involved 127 pension firms with a market value of assets of Sh88.5 billion.

Kenyans have the option of belonging to several pension schemes ranging from individual company schemes run by appointed portfolio managers to the government-run, National Social Security Fund (NSSF).

Offshore

 And since most organisations retire their employees at the end of the year in which they attain retirement age, most workers who left employment last December must be counting their losses.

The survey indicated that the average scheme had punted some 31.4 per cent in domestic equities, despite their volatile ways.

For instance, while the average return on the domestic equity holding was a 21.1 per cent drop, the average exposure to offshore investments, which was 4.2 per cent, recorded a massive 32.1 per cent decline in returns.

Some studies have even shown that returns on offshore investments were worse off with most benchmark indexes declining by over 50 per cent, a clear indication of the genesis of the current global economic downturn.