Retirement planning: Why young Kenyans need private pensions

For many young Kenyans, financial independence is an exciting milestone, whether it’s landing a first job, stepping into management, or starting a business.

The thrill of earning money often comes with lifestyle upgrades: a better house, a car, a new phone, or even buying a small parcel of land. But one crucial thing often overlooked is retirement planning.

The reality is sobering: According to the Retirement Benefits Authority (RBA), a significant number of Kenyan retirees’ struggle to meet their daily expenses with limited pension payouts.

A recent article in the Daily Nation referenced the RBA, stating that most retirees live below Sh20,000 per month, highlighting the financial strain they face. With the cost of living rising, this is a crisis in the making.

To avoid this fate, young Kenyans need a structured retirement plan that guarantees long-term security and flexibility.

Currently, only 19 percent of Kenya’s workforce actively contributes to a pension scheme, meaning most people are heading toward financial instability in old age.

Even those with pensions experience a steep decline in income, with most only able to replace 34.3 percent of their previous earnings, according to the Pensioner Survey 2024, well below the recommended 40 percent replacement ratio needed for a comfortable retirement.

Private pensions offer a practical solution. They enable individuals to build sustainable long-term financial security through higher contributions, tax benefits, and structured payouts that help ensure financial independence.

These plans allow members to grow their savings at a higher rate and provide structured withdrawals that prevent retirees from exhausting their funds too soon.

Many young people assume that statutory pensions will be sufficient, but additional savings through private pension plans provide the financial stability needed for a comfortable retirement.

Many retirees deplete their lumpsums on immediate expense, leaving little for long-term survival. Even setting aside Sh5,000 a month in a private pension plan can accumulate into a significant safety net, compared to starting late and struggling to catch up.

For freelancers, content creators, sports personalities, and online entrepreneurs, financial planning is even more critical.

These professions often come with high but inconsistent earnings, making structured savings essential. Unlike traditional employees who may have employer-backed pensions, self-employed individuals, a category where many young Kenyans belong, must take full responsibility for securing their financial future.

A private pension plan ensures that today’s earnings are safeguarded for long-term stability, offering flexible contributions and investment growth that can adapt to fluctuating income levels.

Kenya’s high youth unemployment rate has left many retirees financially stretched. Instead of enjoying retirement, they find themselves supporting adult children, draining their savings faster than planned. This creates a cycle where financial insecurity is passed down across generations.

Meanwhile, those who are earning well in new industries must recognise that income today is not guaranteed tomorrow. Without structured savings, financial struggles in later years are inevitable.

The RBA recently proposed blocking early access to pension savings before the age of 50. While this aims to prevent people from depleting their retirement funds too soon, it also highlights the need for financial literacy.

A well-managed private pension plan considers factors like investment growth, inflation, and structured withdrawals to ensure financial security. Understanding these elements can make the difference between a comfortable retirement and financial struggles.

Employers also have a role to play. More companies should integrate private pension options into employee benefits, making it easier for workers to build long-term savings.

Encouraging pension participation by matching employee contributions, offering financial wellness programs, and fostering a culture of retirement planning will help create a financially stable workforce.

Earning well today doesn’t guarantee financial security tomorrow. The smartest move any young professional or entrepreneur can make is to take charge of their financial future by enrolling in a private pension plan today.

This isn’t just about saving; it’s about making strategic choices that ensure long-term stability. Your future depends on the decisions you make now. Investing in a private pension isn’t just smart, it’s necessary. Take control before it’s too late.

The writer is the Chief Actuary Liberty Life Kenya