BY VICTOR ADAR
One area of life that has undergone a radical change is that of social security, particularly with regard to poverty in old age. In the traditional African society, social security systems were assured. These took the form of practices and social norms that ensured that the elderly were taken care of by younger members of the society. The socio-economic changes are increasingly leading to a breakdown in traditional systems of old age security.
Taking charge of your post-working life should be a proper plan especially if you want to live a modern lifestyle. As stories are told of people who retired and received plum benefits but crumbled after two or three years, it is better to think outside the box. When you don’t have a salary, or any regular source of income what are you going to do?
Wacheke Nduati, founder and director at Centenomy says that most Kenyans have a consumer lifestyle, an image driven lifestyle. She says out that goals that are bigger than the latest car, for instance, are important. Calling it “sitting down the highway of poverty in a luxury vehicle,” she argues that we do have a consumption lifestyle and people are spending their earning abilities buying things that make them poorer, have depreciating value. High-end smartphones depreciate in value as opposed to true investments like buying shares or bonds for long term.
In essence, people ought to ask the ‘what do I truly value?’ at an early age so that when you retire you can get something. It is true, indeed, that fools earn money to pay everybody else – bar, saloon, restaurants, data and so on. But the wise earn money to pay themselves.
“You don’t have to build up a lifestyle that you cannot sustain. Because when you don’t have a salary what are you going to do? Your biggest goal in your life cannot be the latest car or the latest phone. Start and understand what you want because the luxury car companies are never going to run out on models to replace. Even though you have the latest today, tomorrow it may not be,” says Ms Nduati.
Fortunately, there are many ways of ensuring old age security, the principal one being membership of a retirement benefit scheme. The retirement benefits scheme provides payments to retirees in the form of pension or lump sum payments upon retirement. A retirement benefit scheme can therefore be looked at as a form of insurance for which you pay premiums while you are working against the predictable risk of a period without earnings later in life. The scheme guards against the risk of poverty in old age through ensuring that retired members of a scheme are able to provide for themselves in retirement.
People in the industry say that in the next 10 years, more than 9 million people will be retired, and unemployable. It is therefore a personal responsibility to ensure that you have taken the necessary steps to plan for your retirement life. The easiest and guaranteed way of providing a comfortable retirement is by joining a retirement benefits scheme to avoid the so called “old age trap”.
It is inevitable that as active as we may be today, there will come a time in life when we will have to retire. However our living expenses such as food, medical, housing, electricity and entertainment do not retire. Hence, saving in a retirement benefits scheme now helps us create the much-needed income in retirement, to cater for these expenses. Bone of contention, though, has always been whether the amount is sustainable.
“Your pension fund is never going to be enough for your retirement,” says Nduati. “Even as you are planning for retirement probably you ought to be planning for a bigger amount. Start looking for ways of generating income. It is really about ‘what can I do. What can I actually do with what I have? Do we move out of a house we have bought, rent it out and use the income?’
The main vehicles providing for retirement
Government Sponsored Arrangements: This is through the National Social Security Fund. This is compulsory but its common knowledge that the benefits are meager and not enough to provide for retirement.
Employer Sponsored Schemes: These schemes are formed by the employers for the benefit of the employees. It is not compulsory for employers to establish pension schemes and many employers in Kenya have not set up retirement schemes. This means that the employees of such employers have no form of saving for their retirement.
Individual Pension Plans: Membership is open to all employed persons who are not in employer-sponsored schemes and also people in self-employment. Insurance companies are the main founders of Personal Pension Schemes and the appointed corporate trustees run the scheme as a Trust on behalf of the members. The schemes are registered by the Retirement Benefits Authority (RBA) and Kenya Revenue Authority (KRA) and enjoy all the benefits enjoyed by the Occupational (Employer) Retirement Benefit schemes.
The retirement benefits offered by Insurance companies have a big advantage because they are in form of guaranteed funds. This means that the insurance company guarantees the capital put into the scheme plus a minimum rate of return. If any money is lost in the course of investment, the insurance company absorbs the loss while the clients’ money is fully guaranteed. The members of the scheme do not therefore bear the risk of investment. In the current volatile investment market, this is a valuable aspect to consider in the setting up of a retirement savings plan. This ensures that the fund available to a member at retirement is always way above what he/she has contributed plus investment income.
Who can join these schemes?
Anyone who is over 18 years of age, either formally employed or self-employed can join a scheme simply by completing an application form, and making first contribution. As always, membership is open to the following:
- Those working in organizations that do not have a retirement benefits scheme.
- People in seasonal or contractual employment.
- Self-employed people.
- People working in the Diaspora.
- Members of existing schemes who are changing jobs and would like to transfer their pension funds from the employer sponsored scheme.
- Members of existing pension schemes that seek to enhance their retirement savings.
- Small to medium sized employers who cannot afford to set up a Staff Retirement Scheme
- Partnerships and Practice set-ups.
- Non-Governmental organizations etc.
