Pension funds urged to tap informal sector to sustain growth

Pension funds in Kenya have been urged to consider 15 million informal sector workers who have been excluded from current pension regime to sustain growth of retirement benefits assets following COVID-19 setbacks.

Retirement Benefits Authority (RBA) Chief Executive Officer Nzomo Mutuku says the retirement benefits assets declined 5.77% in the second half of 2020 from Kshs. 1.322 trillion to Kshs. 1.398 trillion due to the adverse effects of the pandemic which adversely affected the financial markets and the wider economy.

RBA says fund managers and approved issuers held majority of the assets amounting to Ksh 1.286 trillion.

Despite majority of informal workers not covered by pension scheme, during the pandemic, schemes continued to invest heavily in government securities with the asset class accounting for 44% of the total assets under management.

This was followed by immovable property which accounted for 17%, investments in guaranteed funds 16% and investments in quoted equities 15%.

“Investment in quoted equities increased by 16% compared to June 2020 owing to the rebound of the stock market after the effects of Covid-19 pandemic while offshore investments also recorded a jump from Ksh 5.92 billion to Ksh 11.38 billion, 92% compared to June 2020,” said Mutuku.

Last month, the National Treasury and Planning Cabinet Secretary Ukur Yatani said plans to establishment a National Informal Sector Pension Scheme that combines long-term savings with short-term needs targeting informal sector workers who have been excluded from the current pensions arrangement are underway.

The scheme which will be rolled out next year has already seen instruments to operationalize it prepared, such as Trust Deed & Rules, Business plan, and Investment Policy.

Speaking at the retirement scheme conference held in Mombasa County, Director of Pensions at the National Treasury Michael Kagika said most Kenyans are not covered in spite of the many private insurers in place stating that there was need to provide the highest attainable standard of health, which include the right to health care services such as reproductive health care and free maternity under the universal health coverage.

“There is a need to fill the long term savings coverage gap for the informal sector as 20% of the labour force is almost exclusively in the formal sector. More than 15 million workers in the informal sector who contribute 34% to GDP are excluded,” said Kagika.

Kingsland Court Group Executive Director Roger Urion challenged policy makers to move with speed in reviewing taxation policy for retirement savings.

He said continued delay in adopting a forward thinking national retirement benefits policy and constant assault on the fundamental principle of saving for retirement are some of the key low moments the industry is facing.

“As a sector we must institute measures to ensure that if another crisis were to occur, we can face it with structured resources, capabilities, services and products that are stronger, more resilient, more flexible,” Urion urged.

According to the Organization for Economic Co-operation and Development (OECD), global retirement savings in pension funds, pension insurance contracts and in other vehicles exceeded the

$50 trillion mark worldwide for the first time, with $49.2 trillion in the OECD area and $1.7

trillion in other reporting jurisdictions at the end of 2019.

  

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