Informal sector retirement savings hit Sh100 million

Money Markets

Mr Edward Odundo, chief executive, Retirement Benefits Authority. PHOTO | FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• Retirement Benefits Authority data shows savings under the Mbao Pension Scheme stood at Sh102 million at the end of last year with some 67,000 contributors.
• The number of contributors has doubled in the last two years, with employees from the formal sector also joining the scheme structured for jua kali workers who receive daily wages.
• As at the end of December 2013, there were 55,000 contributors.

Retirement savings by workers in the informal sector have hit the Sh100 million mark, underlining the growing importance of the Mbao Pension Scheme launched five years ago.

Retirement Benefits Authority (RBA) data shows savings under the scheme stood at Sh102 million at the end of last year with some 67,000 contributors.

“The growth is attributable to confidence and trust in the scheme,” said RBA chief executive Edward Odundo.

The number of contributors has doubled in the last two years, with employees from the formal sector also joining the scheme structured for jua kali workers who receive daily wages. As at the end of December 2013, there were 55,000 contributors.

Contributions to the scheme last year rose by 13.4 per cent to Sh32.8 million, buoyed by new contributors.

Under the scheme, employees in the informal sector save a minimum of Sh20 daily.

According to Eagle Africa Insurance Broker, the administrators of the fund, the cash has been invested in government securities, stock market and fixed deposits. Contributions to the fund cannot be withdrawn for the first three years.

Mbao Pension Plan is gaining ground as it targets informal workers who are ignored by traditional retirement benefits products.

READ: Workers in informal sector can plan for rewarding retirement

Savings are done through M-Pesa or Airtel Money, giving savers convenience and affordability as the transaction charges are much lower than for normal money transfer.

“The innovation has been so successful that other countries have emulated it. South Africa has copied Mbao Pension Scheme and even retained the name,” said Sam Ncheeri, the chief executive of Eagle Africa. He said the World Bank is planning to roll out the scheme in six other African countries.

A new NSSF Act that made it mandatory for casual workers to save towards their retirement has been suspended after it was challenged in court.

If implemented, it will see casual workers contribute six per cent of their earnings to the national pension fund, regardless of the number of days contracted, and their contributions matched by employers. The same arrangement is currently in place for full-time employees.

Pension coverage remains low at about 15 per cent of the country’s labour force. This is because the majority of people work in the informal sector, and their employers seek to avoid the additional cost associated with matching employee contributions.

RBA is currently pushing for all Kenyans to be automatically registered in the statutory pension scheme as they turn 18 to increase the number of those saving for old age.