Road to retirement: Exploring pension plans for Kenyans

Planning for retirement is a critical aspect of ensuring financial security during one's golden years. In a recent interview on CNBC Africa, George O'Yuga, the director of retirement solutions at Kusa Asset Management Limited, shared insights on the milestones and challenges in Kenya's pension landscape. Since the establishment of the Retirement Benefits Authority (RBA) in 1997, Kenya has seen significant progress in pension penetration, reaching around 25 percent. With over 1,000 registered pension schemes, the country is witnessing a positive trend in the number of service providers and members joining these schemes. O'Yuga highlighted the transition from defined benefit to defined contribution schemes, emphasizing their cost-effectiveness and efficiency in delivering benefits to members. He lauded the legislative framework governing pension schemes, which covers funding, investment, and benefits policies comprehensively, ensuring effective retirement planning for individuals. When it comes to choosing a pension plan, O'Yuga noted that the considerations vary based on whether the member or employer is making the choice. Members focus on scheme design, risk appetite alignment, and fair benefits payout, while employers prioritize cost-effectiveness and risk mitigation in selecting a scheme type. The interview also delved into alternative retirement planning options beyond pensions, such as farming or societal support, highlighting the superiority of formal pension arrangements due to tax advantages, fund safety, and structured wealth accumulation processes. Tax incentives play a crucial role in pension planning, with contributions, investment income, and benefits enjoying exemptions under the current policy reforms. O'Yuga underscored the importance of proactive retirement planning, stressing that financial independence and income replacement ratios are key goals for individuals. He emphasized the need for everyone, regardless of their earnings source, to engage in retirement planning to secure a stable and independent financial future. As social safety nets wane, personal responsibility in retirement planning becomes paramount, with failure to plan equating to planning to fail. O'Yuga's insights shed light on the evolving pension landscape in Kenya and the imperative for individuals to prioritize retirement savings for a secure future.