The self-employed should plan better for retirement

Retirement should allow for a retiree to rest and enjoy the fruits of their labour after many years of working.

However, you will still find people having to work or go back to the village after retirement as they cannot afford to continue with the lifestyle they were used to during employment.

According to World Bank’s Three Hindrances to Expanding Pensions in Kenya (2016), only 15 per cent of the population is covered for retirement. This means that a good number of people face the danger of retiring into poverty despite having a stable income. Further, according to Personal Finance 2022 by Investopedia, a household requires up to 80 per cent of their current income during retirement to maintain its lifestyle.

For a majority of the population, that is not the case and here is why; According to World Bank’s Macro Poverty Outlook (2022), the population of people living below the national poverty line, which is estimated to be Sh220 a day, is 34.3 per cent.  This population has either extremely low paying jobs or no source of income and mostly depend on aid from well-wishers. This makes it difficult for them to have a financial plan let alone think about retirement.

The Covid-19 global pandemic saw many lose their jobs while others had their businesses shut down. While that is not enough, 2022 has proven to be yet another tough economic year for most Kenyans. It has seen an unforeseen inflation rate of up to 7.9 per cent as at June 2022, according to the Consumer Price Indices and Inflation Rates report by the Kenya National Bureau of Statistics, as a result of the Russia-Ukraine conflict that resulted in inflation shocks. This has seen the increase on the price of goods and services to a point that even a person with a regular stable income has been forced to cut their expenses in order to afford basic commodities.  

By the time they sort out their house rent and shopping, electricity and other bills, they are left with little to no money to set aside for emergencies or retirement savings.

Lack of public awareness on the importance of saving for retirement is a major issue. Given the fact that financial literacy information is unavailable in schools, most people are either completely unaware of pension schemes or find it difficult to trust and set aside some money for retirement. This is because they do not understand the logic of having to wait till they retire to enjoy their money whereas they have better use for it at the moment.

Some socio-cultural attitudes of Kenyans towards pension is another great limiting factor.

This applies to people who are well aware of how pension works and its benefits but still hold on to the belief that they have invested well in their children´s education and thus believe they will support them when old age catches up.  While this might be the case, it is not an assurance. With the rising cases of unemployment and staff lay off due to harsh economic times, one cannot fully place their hope on an unsure possibility.

A majority of the youth are ignorant on matters savings and retirement and if you ask them why they will tell you that they still have a long way to go. They “live in the moment” without stopping to think of what life after work would look like.

Many will go with the phrase of “we will cross the bridge when we get there”. This indicates that they are not aware of the risks they stare at.

Massive public awareness by the Retirement Benefits Authority in partnership with relevant stakeholders on the importance of saving for retirement would go a long way as it is the greatest hindrance, especially for those with a stable source of income.  The Ministry of Education should also incorporate financial literacy classes in the curriculum. This would see a change in the attitude towards saving for the future as it is easier to instill such knowledge at a young age.

— The writer is a Business Development, Sales & Training officer at Enwealth Financial Services