Budget proposal brings healthcare closer to retirees
Good health is a key pillar to a successful retirement yet this age group is highly vulnerable and the need for hospitalization increases as one ages. In fact, statistics show that 60 per cent of an individual’s medical expenses are incurred after the retirement age - usually 60 years.
The proposition was put forth in the 2023/24 Budget statement to provide tax relief of 15 per cent or Sh5,000 on contributions to Post-Retirement Medical Funds (PRMF) and exempt the earned investment income from income tax.
This demonstrates a positive step towards addressing challenges faced by retirees in accessing affordable healthcare. Findings from a 2021 survey by Enwealth Financial Services showed that about 41 per cent of retirees pay for medical bills out of pocket. The report further indicated that less than a third of pensioners have medical insurance, with 20 per cent relying on the National Health Insurance Fund .
Unfortunately, many private insurances charge higher premiums for medical insurance or even deny coverage to those aged above 65 years due to the perceived higher risk associated with their age. Senior citizens, therefore, find themselves without adequate medical coverage, relying on their meager savings to cover healthcare expenses.
Due to either lack of awareness or incentive, post-retirement medical funds, on the other hand, have witnessed slow uptake since their inception in 2018. This is why the government’s recent proposal acknowledges the financial strain faced by retirees and aims to alleviate this burden. It encourages individuals to save for their post-retirement medical needs and ensures age-related premiums do not become an undefeatable obstacle for the elderly.
By exempting the investment income earned by PRMF from income tax, the government seeks to reduce the strain on expenditure for medical care. This initiative promotes personal responsibility for healthcare savings while ensuring that retirees have access to dignified healthcare without solely relying on limited government resources. Nevertheless, while the proposal is a promising solution, several gaps still need to be addressed to ensure its effectiveness and inclusivity for all retirees. Insufficient awareness remains a significant challenge regarding PRMFs. Many employees (including the self-employed) and pension scheme members are still unaware of the available options, impeding their ability to take advantage of these funds.
Collaborative efforts among regulatory bodies, pension industry players, and employers are necessary to design and implement comprehensive awareness initiatives. By increasing sensitization efforts and providing clear information on the benefits and accessibility of PRMF, we can bridge the awareness gap and empower individuals to make informed decisions about their post-retirement healthcare savings.
While tax relief and the exemption of investment income are steps in the right direction, it is crucial to ensure that these benefits reach individuals across all income levels. The proposed tax relief limits of 15 per cent of contributions or Sh5,000 per month, whichever is lower, should be designed to accommodate the financial capacities of diverse income groups. Given the importance of healthcare in retirement, savers should be enticed to save more with higher relief limits.
Additionally, efforts should be made to make PRMF accessible to all workers, including those who are self-employed. Ensuring inclusivity will guarantee that everyone has an opportunity to secure their healthcare needs in retirement.
By fostering collaboration among stakeholders, improving awareness campaigns, and tailoring the benefits to various income groups, we can build a healthcare system that guarantees dignified healthcare for all retirees. Together, we can create a brighter future with financially stable retirees who have access to comprehensive healthcare.
— The writer is the CEO and Managing Director, Enwealth Financial Services