Businesses & Financial News

Calls grow for mandatory pension contributions

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By Steve Umidha

Pension fund managers would like the government to introduce a defined compulsory contribution into annuity schemes for employees’ monthly deductions in the wake of the global pandemic that has upended life across the country.

Calls to have such an arrangement ratified, have been rambling in the background for some time, and are now coming to a head once more amid mounting concerns that the coronavirus crisis could derail the sector’s growth.

“We have to have such conversations especially at this time of the pandemic, it is the only way we can save our populace. And this has to come from both employers and employees,” said the managing director of CPF financial services Hosea Kili in a webinar news briefing.

Emergency measures were introduced last month which gave companies with final salary –style pension schemes a breathing space to pause contributions and suspend transfer activity as they manage the fallout from Covid-19.

This came at a time when many defined benefit pension schemes in the country were already grappling with funding deficits even before the current crisis hit and have been forced to rapidly adapt to new financial pressure.

“This is the right discussion to have at this point, and we have to involve our youth as well whose saving culture has been wanting despite the existing potential from that group,” said the Chief executive of Pension fund administrator Zamara Group, Sundeep Raichura in the same meeting.

Projections from the month of March, indicated that the pension managers in the country were expecting depressed growth of retirees’ funds due to the c pandemic that has negatively impacted the financial markets – and whose dire consequences on the sector is further expected to prevail owing to the uncertainty in the air.

About 17.5 per cent of retirees’ money was invested in quoted securities at the Nairobi Securities Exchange (NSE) as at December 2019, which amounted to $2.1 billion, up from $1.8 billion in 2018.

The Retirement Benefits Industry in Kenya has undergone major changes in the last few years which has led to a pension coverage of about 20 per cent of the current working population. This figure is said to be below par considering the country’s potential judging by the industry’s growth trajectory in the last decade.

It is a significant improvement in comparison to the years leading up to 1997, according to Retirement Benefit Authority (RBA) Chief executive Nzomo Mutuku, where the industry was generally unregulated and characterized by lack of protection of the interests of the members in management of scheme affairs as well as the absence of a clear regulatory framework.

As a result, Mr. Mutuku has called for the approval of the section 38 of the RBA Act to allow members of the retirement benefits schemes be allowed special privileges during crisis and pandemic such as deferring or waiver of penalties accruing from late submissions among others.

The mandatory pension contribution by workers is largely meant to eliminate old age poverty notwithstanding the country having one of the highest old age poverty rates in East Africa despite being the most developed economy in the sub-region.

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