By Monica Muema
Kenya has the highest pension coverage in the region, yet just 3 million out of 27.1 Kenyans in the labor force have a pension cover.
That disparity according to experts’ views is to blame for the country’s low pension, currently at just 20 percent.
“Despite the significant developments, the pension coverage in Kenya is still low and factors such as market volatility, slowdown in economic growth and unemployment and access of pension savings before retirement are some of the challenges that have led to the slow growth in the sector,” reads in part the weekly report by Cytonn investments.
Cytonn further points at low prioritization of retirement planning as another key concern despite the existing amended industry regulations meant to strengthen the legal and regulatory framework in the pensions sector.
“Given the continued growth and development in the pensions sector, we expect the trend to continue as the Retirement Benefits Authority continues enacting and amending the necessary laws,” noted the investment firm.
The Chief executive of County Pension Fund (CPF) and Local Authorities Pensions Trust (LAPTRUST) Hosea Kili now wants the regulator to consider expanding social security coverage by making pension contributions mandatory for all Kenyans, if the sector is to grow beyond its potential.
Through an establishment of a universal fund, Kili says such a fund would exist by allocating a percentage of the national budget to go towards the kitty for universal pension and medical coverage.
“This can be achieved by introducing a pension levy on mandatory goods and services to realize mandatory State social security. It could also look at a levy on vital goods such as airtime, a small portion of which can be built over time,” advised Kili.
The proposed universal fund, he said should be implemented as a flagship project under Vision 2030 while benchmarking on Norway, which used proceeds from its oil resources to build a sovereign fund, which it invests in major projects such as infrastructure, affordable housing.
Further, Kili in his recommendations at the just concluded 2021 Devolution Conference, warned that uncertainty over the path of global warming also posed profound risks for the country’s pension plans with many providers today struggling to steer the transition to a lower –carbon future.
As a result he wants the Retirement Benefits Authority (RBA) to work with industry stakeholders to develop a measurement framework for climate and other ESG-related risks in an effort to promote incentives that will allow pension funds establish robust internal expertise on climate and other ESG-related considerations.
Greening a pension system ordinarily involves developing awareness and expertise within the pension funds regarding climate change, including drivers of vulnerability and exposure by sector and ESG considerations, such as critical metrics and regulatory guidelines by RBA.
It follows a previous plea to pension scheme trustees in Kenya by the Capital Markets Authority (CMA) to diversify their investments in a bid to revitalize the sector that has been impacted negatively by the Covid-19 pandemic.
Speaking last month during a Sanlam Investments East Africa conference in Malindi, Capital Markets Authority Chief executive Wykcliffe Shamiah urged the funds to retool their investment portfolio to maximize returns.
“I urge the industry stakeholders to come up with products or innovations, attractive to our youth so that we prepare them to prefer capital markets as an investment option offering plausible returns on investments,” Shamiah said.
The Kenyan pension fund sector is ranked the biggest in the region with over Sh1.4 trillion worth of savings invested in various asset classes.
Last year, pensions recorded increased withdrawals and surrenders due to revenue crunch and Covid-19 induced job losses.
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