CONTACTS: +254 726879488 (Mobile)
+254770 455 116 (Office)
By UMIDHA Steve
Millennials and Generation Z or Gen Zers are the innate progression to replacing the retiring Baby Boomers, and annuity providers need to know how to best capitalize on their delicate attributes and lead them effectively in the changing workforce.
And so, in a move to address the pressing challenges facing the retirement benefit schemes, trustees are being urged to shift their focus towards this lot, born between 1995 and 2012, whereas Millennials were born between 1981 and 1996. In 2019 the oldest Millennials turned 40, which means that they have been part of adult life for a while.
Speaking during the opening ceremony of the Zamara 2023 trustees convention, the Director at the School of Pension and Retirement Studies, Dr. Edward Odundo highlighted the importance of early planning.
“The younger members of the workforce that is today the larger component membership of retirement benefit schemes is notorious for not being very focused on many things long term such as preparing and saving for future retirement. They want to live for the here and now and not for tomorrow,” he said.
“This represents a challenge we must rise to as a society and as a sector. There are no alternatives to savings. We cannot innovate ourselves out of the need to save for our future needs. Savings requires that we put aside the lure of instant gratification.
It is a battle he believes “we must be ready to fight and win today so that we can face the challenges tomorrow will bring. Our collective responsibility is to empower and educate the younger generation about the significance of long-term financial planning, which includes retirement savings.”
To achieve this, a multi-pronged approach will be needed to create better awareness and develop effective strategies for incentivizing savings among the young population. The growing temptation of instant gratification must be countered, as savings require individuals to set aside the lure of short-term pleasures.
James Olubayi, the Executive Director, Zamara said that the need for savings is universal, and without proper planning and engagement, the younger generation may face uncertain financial futures.
This concern underscores a critical challenge that both society and the retirement benefit sector must tackle head-on.
“The retirement benefit sector is at a pivotal juncture, and it must adapt to the evolving needs and attitudes of its membership base. Trustees have a critical role to play in steering the course toward a secure and prosperous retirement for all members, regardless of age. The time to act is now,” he said.
Kenya’s pension sector witnessed a noticeable growth last year of Sh 1.7 trillion with a contributor population of 4.3 million, representing a coverage of 26 percent of the working population.
Kenyans ‘Sleepwalking’ Into A Retirement Crisis
More than 10 million Kenyans face a retirement crisis as they fall short of adequate savings once they leave work, experts have warned.
Although cracks have been forming in the foundation of the country’s retirement security for decades now, analysts believe the Coronavirus pandemic has only made it worse with lean solutions in sight.
Statistics show that less than 10 per cent of Kenyan population retire financially independent.
One of those reasons being cited for the sorry state is that, when saving for retirement, most people underestimate how much they will have to pay for medical expenses during their retirement years.
As a result, it is now feared that about 16 million salaried Kenyans could be sleepwalking into a retirement catastrophe unknowingly.
“I can tell you Kenyans are sleepwalking into disaster without even knowing it,” expressed a concerned Sundeep Raichura – the Chief executive of Zamara Actuaries, Administrators & Consultants, adding that the problem is widespread with as many Kenyans not having insurance life covers to cater for their crucial needs such as disability.
Unless Kenya prepares for the challenge, a retirement calamity of immense proportions could happen sooner rather than later, according to Raichura who has questioned the foot-dragging by authorities to implement the National Social Security Fund Act of 2013 whose execution was expected to provide an obligatory superannuation pension plan for all salaried Kenyans.
Read: Millions of Kenyans are sleepwalking into a retirement crisis
It was also expected to address some of the challenges facing the sector today.
What is the new NSSF deduction for 2023?
After the enactment of the National Social Security Fund Act, 2013 [PDF], it became mandatory for persons with income and all employers to join NSSF and make contributions before the 9th of the following month preceding the paid one failure to which an employer risks a fine not exceeding Ksh50,000.
Initially, NSSF contributions were set at a minimum of Ksh200, but following a recent review that took effect on February 15, 2023, all employees must contribute 6% of their salaries towards the retirement plan, and the employer should match the same to bring the total to a 12%.The 6% by the employer is totally from a different source other than the employee’s salary.
Interpretation of New NSSF rates
Here is how the latest NSSF rates work – the amount of money deducted from employees’ payslips, plus employers’ contributions: As per the NSSF Act, the ceiling value that can be considered for the cut was set at Ksh20,000.
However, it is capped at Ksh18,000 as the Upper Earning Limit (UEL), the highest amount computed for pension deductions, and eligible for Tier I and Tier II Fund accounts.
On the other hand, the earnings that qualify for deductions in the Tier I category are salaries below Ksh6,000.
Tier I NSSF Fund account is mandatory for all employees, but for NSSF Tier II, one can choose to opt-out if they have an already existing organized life insurance or other insurance with other private companies.
Here is how to calculate NSSF contributions in Kenya
The displayed salaries have been used as examples to show the workings. You can substitute it with your earnings when making calculations, knowing that for the NSSF Tier 1 account, the maximum amount to be considered pensionable is Ksh6,000 and below.
For Tier 2, the remainder of the NSSF’s Upper Earnings Limit of Ksh18,000 from the Lower Earnings Limit of Ksh6,000 is taken into account when calculating NSSF contributions.
Using the formula:
Employees of salaries below Ksh6,000: NSSF Contributions = 6% of salary + 6% of employer’s benefaction.
Employees of salaries above Ksh6,001 to Ksh17,999: NSSF Contributions = 6% of Ksh6000 for Tier 1 + similar amount from the employer + 6% of (Gross salary/pensionable amount – Tier 1 maximum contribution limit Ksh6,000) + similar amount from the employer
Employees earning Ksh18,000 and above: NSSF Contributions = 6% of Ksh6,000 + matching amount from the employer, for Tier 1 + 6% of (NSSF Upper Earning Limit of Ksh18,000 – Tier 1 maximum contribution limit of Ksh6,000) + matching amount from the employer