In Kenya, dependence rate in old age is extremely high because the country does not have a universal social security programme..
NAIROBI, Kenya / Business Daily Africa / March 17, 2009
Written by Steve Mbogo
For those Kenyans aged 35 and above and have not even saved Sh1,000 for pension, the high noon may come three decades from now— when one is most vulnerable.
Mr Dominic Kiarie, the managing director of British American Asset Managers, says 35 years should be the latest age that one should start saving for pension, otherwise retirement will become a nightmare with no money to support the family or continue with the lifestyle one is used to.
In Kenya, people who start saving for pension at 35 have 25 more years to work, after the government revised the retirement age for civil servants, which could be replicated in the private sector, to 60 years.
“The best age to start saving for pension is between 25 and 35. Pension works on the principal of compounding interest. The percentage of contribution of one’s salary should be 10-20 per cent, going up as one approaches retirement,” said Mr Kiarie.
Small amounts
The concept of compound interest was once termed “one of the greatest mathematical concepts of our time” by Albert Einstein, the science and mathematics genius, because of its ability to turn small amounts of money into a lot over the years.
Personal financial experts say no matter ones age after the first day of work, it is important to decide what retirement age feels right, then work on the pension plan with that in mind. Financial forecasting to decide how much to save and when can be obtained with the help of a professional personal financial consultant.
Some tips towards pension planning include the awareness that working longer means more time to save and more time for investments to work for you and early retirement means one will need more savings to meet financial goals.
Research has shown that in Kenya, 84 per cent of the informal sector has no pension and 80 per cent of the formal sector is also not covered. It means dependence rate in old age is extremely high, a factor that helps to create a cycle of poverty because incomes of workers are drained by the expenses of their aging parents.
“The main problem is lack of knowledge regarding the benefits of the pension,” said Mr Kiarie. Last year, his company launched a pension management fund for small to medium-size pension schemes and individual pension plans.
The fund is meant to help informal sector workers get into a professionally managed pension fund, and also offer pension management services to SMEs who may not meet the cost or get the expertise of managing a pension scheme.
Majority of Kenyans perceive pensions saving as a luxury activity that is undertaken only after they having taken care of all other financial needs like buying a house, a car, land, educating children and so on, says Mr Edward Odundo, the chief executive officer of the Retirement Benefits Authority.
“This is a perception that we must reverse so that pension saving is incorporated in the financial planning exercise, hence the need to reach the public and educate them on the importance of saving for retirement.”
The authority has subsequently launched a public education campaign on the importance of contributing to pension schemes.
According to Mr Odundo, the youth is particularly vulnerable to lifestyles that may prevent them from saving for pension. He said that was why one of the authority’s education plans is to partner with learning institutions to introduce pension education in schools and universities so that young Kenyans can learn to incorporate pension saving in their financial planning as soon as they are employed.
“We are looking at achieving a situation where employers will incorporate retirement planning in their employee induction programme so that every working Kenyan in the formal sector can make retirement a priority within the overall financial planning,” he said.
One of factors that should motivate every working Kenyan to be part of the pension scheme is that the country does not have a universal social security programme.
This means that the government does not give financial support to retirees as happens in some developed and developing economies.
But the benefits of investing in a pension scheme extend beyond the personal gains.
For instance, pension money forms a pool of financial resources which institutions including the government can borrow from to develop social infrastructure like roads and hospitals.
Total issue
This would mean that the government does not have to borrow from expensive foreign markets or beg for aid.
In the most recent case this year, the Ministry of Finance said the retirement benefits sector was the largest investor in the recent issuance of the infrastructure bond, with allocation of Sh8 billion or 42.9 per cent out of the total issue of Sh18 billion. These funds are earmarked for the development of infrastructure facilities under roads, energy and water.
Pension money also moves the capital markets, in the Kenyans case the Nairobi Stock Exchange and the bonds market.
© Copyright 2000-2007 by Nation Media Group
March 17, 2009
KENYA: Early pension plan can save you cash woes in old age
.
In Kenya, dependence rate in old age is extremely high because the country does not have a universal social security programme..
NAIROBI, Kenya / Business Daily Africa / March 17, 2009
Written by Steve Mbogo
For those Kenyans aged 35 and above and have not even saved Sh1,000 for pension, the high noon may come three decades from now— when one is most vulnerable.
Mr Dominic Kiarie, the managing director of British American Asset Managers, says 35 years should be the latest age that one should start saving for pension, otherwise retirement will become a nightmare with no money to support the family or continue with the lifestyle one is used to.
In Kenya, people who start saving for pension at 35 have 25 more years to work, after the government revised the retirement age for civil servants, which could be replicated in the private sector, to 60 years.
“The best age to start saving for pension is between 25 and 35. Pension works on the principal of compounding interest. The percentage of contribution of one’s salary should be 10-20 per cent, going up as one approaches retirement,” said Mr Kiarie.
Small amounts
The concept of compound interest was once termed “one of the greatest mathematical concepts of our time” by Albert Einstein, the science and mathematics genius, because of its ability to turn small amounts of money into a lot over the years.
Personal financial experts say no matter ones age after the first day of work, it is important to decide what retirement age feels right, then work on the pension plan with that in mind. Financial forecasting to decide how much to save and when can be obtained with the help of a professional personal financial consultant.
Some tips towards pension planning include the awareness that working longer means more time to save and more time for investments to work for you and early retirement means one will need more savings to meet financial goals.
Research has shown that in Kenya, 84 per cent of the informal sector has no pension and 80 per cent of the formal sector is also not covered. It means dependence rate in old age is extremely high, a factor that helps to create a cycle of poverty because incomes of workers are drained by the expenses of their aging parents.
“The main problem is lack of knowledge regarding the benefits of the pension,” said Mr Kiarie. Last year, his company launched a pension management fund for small to medium-size pension schemes and individual pension plans.
The fund is meant to help informal sector workers get into a professionally managed pension fund, and also offer pension management services to SMEs who may not meet the cost or get the expertise of managing a pension scheme.
Majority of Kenyans perceive pensions saving as a luxury activity that is undertaken only after they having taken care of all other financial needs like buying a house, a car, land, educating children and so on, says Mr Edward Odundo, the chief executive officer of the Retirement Benefits Authority.
“This is a perception that we must reverse so that pension saving is incorporated in the financial planning exercise, hence the need to reach the public and educate them on the importance of saving for retirement.”
The authority has subsequently launched a public education campaign on the importance of contributing to pension schemes.
According to Mr Odundo, the youth is particularly vulnerable to lifestyles that may prevent them from saving for pension. He said that was why one of the authority’s education plans is to partner with learning institutions to introduce pension education in schools and universities so that young Kenyans can learn to incorporate pension saving in their financial planning as soon as they are employed.
“We are looking at achieving a situation where employers will incorporate retirement planning in their employee induction programme so that every working Kenyan in the formal sector can make retirement a priority within the overall financial planning,” he said.
One of factors that should motivate every working Kenyan to be part of the pension scheme is that the country does not have a universal social security programme.
This means that the government does not give financial support to retirees as happens in some developed and developing economies.
But the benefits of investing in a pension scheme extend beyond the personal gains.
For instance, pension money forms a pool of financial resources which institutions including the government can borrow from to develop social infrastructure like roads and hospitals.
Total issue
This would mean that the government does not have to borrow from expensive foreign markets or beg for aid.
In the most recent case this year, the Ministry of Finance said the retirement benefits sector was the largest investor in the recent issuance of the infrastructure bond, with allocation of Sh8 billion or 42.9 per cent out of the total issue of Sh18 billion. These funds are earmarked for the development of infrastructure facilities under roads, energy and water.
Pension money also moves the capital markets, in the Kenyans case the Nairobi Stock Exchange and the bonds market.
© Copyright 2000-2007 by Nation Media Group
In Kenya, dependence rate in old age is extremely high because the country does not have a universal social security programme..
NAIROBI, Kenya / Business Daily Africa / March 17, 2009
Written by Steve Mbogo
For those Kenyans aged 35 and above and have not even saved Sh1,000 for pension, the high noon may come three decades from now— when one is most vulnerable.
Mr Dominic Kiarie, the managing director of British American Asset Managers, says 35 years should be the latest age that one should start saving for pension, otherwise retirement will become a nightmare with no money to support the family or continue with the lifestyle one is used to.
In Kenya, people who start saving for pension at 35 have 25 more years to work, after the government revised the retirement age for civil servants, which could be replicated in the private sector, to 60 years.
“The best age to start saving for pension is between 25 and 35. Pension works on the principal of compounding interest. The percentage of contribution of one’s salary should be 10-20 per cent, going up as one approaches retirement,” said Mr Kiarie.
Small amounts
The concept of compound interest was once termed “one of the greatest mathematical concepts of our time” by Albert Einstein, the science and mathematics genius, because of its ability to turn small amounts of money into a lot over the years.
Personal financial experts say no matter ones age after the first day of work, it is important to decide what retirement age feels right, then work on the pension plan with that in mind. Financial forecasting to decide how much to save and when can be obtained with the help of a professional personal financial consultant.
Some tips towards pension planning include the awareness that working longer means more time to save and more time for investments to work for you and early retirement means one will need more savings to meet financial goals.
Research has shown that in Kenya, 84 per cent of the informal sector has no pension and 80 per cent of the formal sector is also not covered. It means dependence rate in old age is extremely high, a factor that helps to create a cycle of poverty because incomes of workers are drained by the expenses of their aging parents.
“The main problem is lack of knowledge regarding the benefits of the pension,” said Mr Kiarie. Last year, his company launched a pension management fund for small to medium-size pension schemes and individual pension plans.
The fund is meant to help informal sector workers get into a professionally managed pension fund, and also offer pension management services to SMEs who may not meet the cost or get the expertise of managing a pension scheme.
Majority of Kenyans perceive pensions saving as a luxury activity that is undertaken only after they having taken care of all other financial needs like buying a house, a car, land, educating children and so on, says Mr Edward Odundo, the chief executive officer of the Retirement Benefits Authority.
“This is a perception that we must reverse so that pension saving is incorporated in the financial planning exercise, hence the need to reach the public and educate them on the importance of saving for retirement.”
The authority has subsequently launched a public education campaign on the importance of contributing to pension schemes.
According to Mr Odundo, the youth is particularly vulnerable to lifestyles that may prevent them from saving for pension. He said that was why one of the authority’s education plans is to partner with learning institutions to introduce pension education in schools and universities so that young Kenyans can learn to incorporate pension saving in their financial planning as soon as they are employed.
“We are looking at achieving a situation where employers will incorporate retirement planning in their employee induction programme so that every working Kenyan in the formal sector can make retirement a priority within the overall financial planning,” he said.
One of factors that should motivate every working Kenyan to be part of the pension scheme is that the country does not have a universal social security programme.
This means that the government does not give financial support to retirees as happens in some developed and developing economies.
But the benefits of investing in a pension scheme extend beyond the personal gains.
For instance, pension money forms a pool of financial resources which institutions including the government can borrow from to develop social infrastructure like roads and hospitals.
Total issue
This would mean that the government does not have to borrow from expensive foreign markets or beg for aid.
In the most recent case this year, the Ministry of Finance said the retirement benefits sector was the largest investor in the recent issuance of the infrastructure bond, with allocation of Sh8 billion or 42.9 per cent out of the total issue of Sh18 billion. These funds are earmarked for the development of infrastructure facilities under roads, energy and water.
Pension money also moves the capital markets, in the Kenyans case the Nairobi Stock Exchange and the bonds market.
© Copyright 2000-2007 by Nation Media Group
