The Central Bank of Kenya (CBK) is vouching for development of smart savings solutions that will enhance Kenya’s gross savings as a percentage GDP.
According to the 2021 Kenya Financial Sector Stability Report by CBK, the penetration of pension among the working population is still low at about 21pc, despite the overall growth in pension assets.
“The pension sector is not able to provide adequate cover to as millions of Kenyans in retirement, to enable them afford a decent lifestyle. As a result, most Kenyans above the age of 60 are dependants,” stated the report.
Last year, total pension assets grew 10.6pc to Ksh 1.5 trillion from Ksh 1.4 trillion recorded in 2020 on account of improved economic recovery after CPOVID-19 and improved performance of equities market which positively impacted pensions sector.
In a bid to shore up the country’s savings, the National Social Security Fund Act of 2013 sought to increase minimum mandatory pension contribution to 12pc of Pensionable Income with both the employee and employer contributing 6pc.
The move which was declared null and void Monday by the High Court following a petition challenging its implementation now means employees will continue to contribute a minimum of Ksh 200 per month to NSSF.
The court order could be seen as a setback to President William Ruto’s administration which is keen on increasing the country’s gross savings which continues to hover at 15pc as at 2020 according to data by the World Bank.
Within the EAC, Tanzania leads with a gross saving of 35pc, followed by Uganda and DRC at 22pc AND Rwanda at 12pc. Burundi and South Sudan have the lowest ratio in the region at 6pc each.
“It is not possible for us to continue contributing Ksh 200 and pretending we are doing anything called saving. It is not saving, it is a joke,” said President Ruto last Saturday.
Majority of pension assets at 45.7pc or Ksh 707 billion is held in government securities while quoted securities account for 16.5pc or Ksh 254.6 billion.
Guaranteed funds, fixed deposits and offshore investments follow with Ksh 259.8 billion, Ksh 27.8 billion and Ksh 19.4 billion respectively.
Sanlam Investments East Africa Company and GenAfrica asset managers held assets under management of Ksh. 288.8 billion or 20 percent, and KSh 270.4 billion or 18.8 percent of total assets in 2021, raising concerns about concentration risks.
CBK says some of the reasons for the inadequacy of benefits include low contributions, short contribution period and leakages due to early withdrawals.
Nonetheless, CBK says, “Longevity risk remains a challenge due to rising life expectancy after retirement that exposes retirees to the danger of outliving their retirement savings.”
CBK is says digital products such as Haba na Haba by NSSF, Gift a pension by Zamara and Mobikeza by Octagon will go a long way in accelerating savings and providing easy access to financial solutions.