By NZOMO MUTUKU
National Treasury and
Planning Secretary Henry Rotich through Legal Notices Number 87 and 88
published on June 17, 2019 amended the Retirement Benefits Umbrella and
Occupational Regulations to further extend preservation of retirement
benefits to include 100 percent of
employer contribution.
employer contribution.
Previously
scheme members could access 100 percent of benefits from employee
contributions and 50 percent of benefits from employer contribution in
the event of leaving service of an employer before retirement age. From
June 17, 2019 scheme members can still access 100 percent of employee
contribution but none of the benefit from employer contribution.
The
existing exemptions to this rule for early retirement, emigration and
medical grounds however still remain. Similarly, members can still use
part of their accumulated benefits to secure a mortgage to purchase a
house in accordance with the Retirement Benefits (Mortgage) Regulations.
For
the preserved benefits, which will continue to be invested and
accumulate interest, members have the option to retain them in the
scheme of the previous employer or transfer them to another
occupational, umbrella or individual scheme of their choice.
A
number of recent studies that have been widely publicised in the media
(see Business Daily newspaper of April 1, 2019 “Pension puzzles that
need urgent attention in Kenya” have found pension adequacy to be the
biggest challenge in Kenya’s pension system.
The quoted study found the pension replacement rate in Kenya to
be on average only 34 percent against an ideal target of 75 percent in
terms of pension income as a proportion of pre-retirement income. This
is in line with findings from earlier studies by the Retirement Benefits
Authority (RBA).
The primary cause of this low pension
adequacy in Kenya was traced to frequent access to the benefits before
retirement with 95 percent of individuals who leave employment opting
not to preserve their benefits but taking out the maximum available
under legislation in cash. This was likened to “going on a long distance
journey and emptying the fuel tank at every stop.”
The main pillars of a successful pension industry are security, sustainability, inclusivity and adequacy.
Security
and sustainability of the system was established by the Retirement
Benefits Act which put in place a secure funded system with strong
checks and balance.
Recent efforts have seen pension
coverage in Kenya increase from 12 percent to 20 percent of the labour
force. In addition, the Authority recently launched a new Strategic Plan
with a focus on addressing inclusivity by focusing on increasing
pension coverage in the Informal Sector. The Cabinet Secretary has now
moved to address the remaining pillar of pension adequacy.
Low
pension adequacy points to a worsening of old age poverty with huge
social implications in a country without strong social security systems
and where urbanisation has seen the disintegration of traditional
systems that cared for the old.
The recent amendments
by the Cabinet Secretary will thus help secure a brighter retirement for
members of retirement benefits schemes in Kenya.
Nzomo Mutuku, Chief Executive Officer, Retirement Benefits Authority.
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