Gen-Z block pension curbs for under 50s

The law currently allows workers under 50 access to half of their pension benefits when they change jobs.

This law has eroded pension savings, warns the RBA, leaving workers with inadequate savings upon retirement.

But the younger workers opposed changes to the law during public review of the draft regulations that pushed for the removal of clauses that allowed early access to the pension savings.

Older workers support preserving the pension, underlining a shift in attitudes toward work and retirement among young workers, who global research indicates are delaying paying attention to their pensions.

Instead, the younger workers are more concerned with more immediate financial concerns, including trying to buy a house, says the research.

Read:  Why RBA doesn’t want you accessing pension before 50

“First of all, during public participation, the mature people were for the preservation. It is only the young who were against the proposal,” said RBA Director, Research, Strategy and Planning Lazarus Keizi.

“After discussions, the consensus was on a gradual implementation beginning with the requirement to preserve 60 percent of the member pension contributions.”

RBA reckons it will consider a gradual raise on the restriction on early access from the proposed 40 percent over the medium term.

“Because of the Statutory Instruments Act, any future changes will need public participation, and we will therefore bring fresh proposals anytime we need to review the access limits, “ Mr Keizi added.

Analysts say that the relatively low number of Kenyans saving for pensions and the value of retirement payouts have compelled many retirees, especially those approaching the legal retirement age of 60, to continue working.

The surge in layoffs witnessed after the economic hardships related to the Covid-19 pandemic, beginning 2020, has seen a rise in pension contributors accessing part of their retirement savings before they reach the age of 50, which is the legally set early retirement age.

At 50, they must show proof of being unemployed.

Workers can tap their full pension before age 50 on grounds of ill health or when migrating out of Kenya permanently.

RBA Chief Executive Officer Charles Machira said the regulator was still keen on maintaining a window for early access of pension benefits for specific needs, including school fees, medical bills and mortgage payments.

“We are allowing people to access 40 percent of their contributions if this proposal goes through,” he said.

“We are also deliberate that we should create avenues that if you need school fees, medical, or a mortgage payment, then we must find ways to ensure people can access their money.”

The proposals to curb early payouts emerge in an era where retirees have continued to work due to a lack of or an inadequate pension.

Earlier data from the Kenya National Bureau of Statistics (KNBS) showed that 708,902 of 869,338 persons above the age of 60 were in active employment, representing 81.5 percent of the senior citizens in the country.

This points to a possible deepening of old age poverty, which in itself has significant social implications in a country where the traditional patterns of the young caring for the old are changing.

Kenya also suffers from low pension coverage, with more than 70 percent of Kenyans retiring without a pension, save for the inadequate payout from the National Social Security Fund (NSSF).

The NSSF’s monthly contributions stood at Sh400 for years, and the fund on average paid out less than Sh250,000 when a member retires.

Workers are presently paying up to Sh4,320 monthly after NSSF contributions were increased in February 2023.

The higher contributions lifted the pool of funds at the State-run national pension fund to more than Sh400 billion as of June last year, from 295.6 billion in December 2022.

Kenyans, on average, are living longer, and the number of elderly poor is rising as the traditional social fabric yields to the forces of rapid urbanisation and changing social and family trends.

In the past, social security was not a bother to many Kenyans because there was a large extended family to fall back on in the rural areas, but as the social fabric weakens and more people opt to retire in urban centres, the trend is increasingly becoming a headache to policymakers.

This is what prompted the State to start a monthly stipend of Sh2,000 for those above 70 years to cushion them from old-age poverty.

A recent RBA survey established that more than half of retired Kenyans deemed their retirement savings inadequate.

“A significant portion, 57 percent, expressed that their savings were inadequate, highlighting concerns about financial security,” said the survey.

“In contrast, 41 percent believed their savings were sufficient, indicating varying levels of confidence in their financial preparedness. A small two percent remained uncertain about the adequacy of their savings.”

Retirement benefits assets under management (AUM) reached Sh2.25 trillion at the end of December 2024, largely supported by increased contributions to the NSSF.

→ [email protected]