More than half of workers earning less than Sh50,000 are not saving for pension, setting up thousands of Kenyans to old age poverty.
Financial service firms ICEA Lion Group reveals in a survey that 27 percent of respondents earning less than Sh30, 000 are saving for the retirement, while 45 percent of persons between Sh30,000 and Sh50,000 have no pension savings.
In contrast, 56 percent of Kenyans earnings between Sh50,001 and Sh100,000 a month are making pension savings, representing more than half of the income group.
Earners of more than 500,000 a month have the highest proportion of persons making pension savings at 89 percent.
This exposes the lower earners to old age poverty, which in itself has significant social implications in a country where the traditional patterns of the young caring for the old are changing.
Analysts point out that the relatively low number of Kenyans saving for pension and the value of payouts at retirement have compelled many retirees or those approaching the legal retirement age of 60 to continue working.
‘Pension savings appear to increase with increase in monthly income. Similarly, the savings increase with age apart from those over 60 and still working,’ the report indicates.
‘A significant portion of the currently working population has alternative savings with fixed deposits and other formal investments with saccos being the most popular choices. Retirees mostly had alternative savings in Saccos and fixed deposits and other formal investments,’ the report added.
The high share of Kenyans not paying for pension are in the informal sector given that formal sector workers are obligated to save for retirement through the National Social Security Fund (NSSF).
The average savings for the formal sector stood at Sh4,733 and Sh1,421 for informal sector workers, an indication that most workers would struggle to build an adequate retirement nest
The survey sampled 1,300 individuals from both the formal and informal sectors across key urban and semi-urban areas of Nairobi, Mombasa, Eldoret,Nakuru, Nyeri and Kisumu.
About 45 percent of the respondent are savings with NSSF, making it dominant compared to company sponsored schemes.
The NSSF’s monthly contributions stood at Sh400 for years, and the fund on average paid out less than Sh250,000 when a member retires.
Workers are presently paying up to Sh4,320 monthly after NSSF contributions were increased in February 2023.
A 2024 survey by the Retirement Benefits Authority (RBA) showed that most retirees struggle with inadequate pension savings due to high living costs and a burden from dependants.
Only four out of every 10 surveyed retirees or 41 percent of them felt that their pension was sufficient.
‘Despite many saving for 30 to 40 years, only 41 percent felt their pension benefits were sufficient. This suggests that savings rates are often too low, emphasising the need for encouraging higher contributions and additional voluntary contributions,’ RBA said.
The uptake of additional pension contributions, over and above the mandatory NSSF remittances, stands at only 19 percent. The regulator also reveals a sharp drop in income post-retirement where most retirees earn significantly less than before which reinforces the need for more aggressive saving and better financial planning.
Kenyans, on average, are living longer, and the number of elderly poor is rising as the traditional social fabric yields to the forces of rapid urbanisation and changing social and family trends.
In the past, social security was not a bother to many Kenyans because there was a large extended family to fall back on in the rural areas, but as the social fabric changes and more people opt to retire in urban centres, the trend is increasingly becoming a headache to policymakers.
This is what prompted the State to start a monthly stipend of Sh2,000 for those above 70 years to cushion them from old-age poverty.