Early Kenya retirees to access their pension cash

Public Service minister Dalmas Otieno. A new pension plan will await the outcome of the referendum. Photo/FILE
By ALPHONCE SHIUNDU

Finance minister Uhuru Kenyatta bowed to pressure from MPs last week and formally tabled the gazette notice allowing retirees to go home with half their benefits upon leaving employment.

The move opened the door for hundreds of poverty-ridden Kenyans, many who retired early or were retrenched, to access millions of shillings in frozen pensions. The occupational pension scheme is estimated at Sh200 billion.

Withdraw Bill

Mr Kenyatta’s move saw Saboti MP Eugene Wamalwa withdraw a Bill that he had tabled in Parliament seeking to open the window for early retirees to go home with their contributions.

The minister’s notice dated September 30, 2010 makes it possible for anyone who has worked for three years to go home with half the benefits upon retirement, if they have not attained the official retirement age of 60 years.

The notice seeks to amend the Retirement Benefits (Occupational Retirement Benefits Schemes) Regulations of 2000, popularly known as the Mwiraria Rules (after the then Finance Minister David Mwiraria).

The regulations were aimed at improving Kenyans’ savings rate and leave enough money in the hands of pension managers to invest in the long-term debt instruments such as bonds.

Heavy criticism

Pressure has, however, been building on Treasury to amend the law, which has come under heavy criticism for condemning thousands of Kenyans to poverty in retirement as pensions managers continue to hold millions of shillings due to them.

An employee may also opt for the payment of his own contribution and 50 per cent of his employer’s contribution and the investment income that has accrued in respect of those contributions, where he is a member of a defined contribution scheme.

Similarly, one is entitled to full benefits on grounds of ill health, if the illness would render one unemployable. Besides, if an employee of a scheme emigrates to another country “without the intention of returning to reside in Kenya”, then the trustees of the scheme will have to seek the Retirement Benefits Authority’s approval to give all the benefits.

This permission has to be sought 14 days before the notice is granted. Life expectancy in Kenya stands at 48 years, which means that only a few of the early retirees could actually live to the age of 50 and qualify to access the frozen funds.

The regulations will definitely reduce the confidence of some financiers who had sought to allow pensioners to use part of their benefits as security for mortgages.

Elderly poor

The new pension plan comes as the country faces a problem that is fast becoming a nightmare to the pension management industry: Kenyans on average are living longer and the ranks of the elderly poor is rising faster like never before.

Buoyed by improved medical care, life expectancy for Kenyans aged 55 years and above has been growing over the past decade. Policy makers anticipate that it is set to grow further in the coming years.

And with the fraction of working Kenyans covered by pension schemes expected to drop due to continued shrinkage of the formal sector through retrenchment, retirements and reduced employment opportunities, the ranks of people joining the poverty bracket is set to swell.