The Retirement Benefits Authority (RBA) has recently proposed changes to the law that would prevent workers from accessing 50 percent of their pension savings when changing jobs before turning 50.
This move, according to the regulator, aims to ensure that workers accumulate adequate funds, reducing their reliance on income-generating activities after retirement.
Accessing a portion of pension savings when changing jobs has historically provided workers with a financial cushion during transitions.
For many, this money is a lifeline, helping to cover needs such as medical security before their new healthcare plan kicks in, sometimes meeting education fees, or even starting a small business for those leaving employment before they turn 50.
However, the fact that more than 82 percent of senior citizens still engage in active income-generating activities for basic needs gives this proposal credence.
The policy shift seems well-intentioned. However, a far more pressing issue threatens the financial security of Kenyan workers, employers failing to remit pension contributions.
Institutions such as county governments hold billions in unremitted pension funds. This unfortunate reality highlights the lack of accountability among employers and undermines the purpose of pension savings rendering the savings scheme ineffective.
Therefore, aside from limiting accessibility, the regulator should also address the failure of remittances that threatens workers’ financial security, limiting their investment growth as they lose out on potential interest that could have significantly increased their savings over time.
The revelation that billions of shillings remain unremitted by employers is a stark reminder of the systemic failures in Kenya’s pension system. These unremitted funds represent more than just financial negligence, they signify a profound disregard for the welfare and future security of workers. The regulator must address this issue.
Without strict enforcement and accountability, workers risk retiring into financial uncertainty despite years of mandatory deductions ending up spending much of their retirement time following up on funds and ending up essentially with a refund, rather than an investment.
Securing employees’ retirement future requires stronger measures to ensure pension funds deducted are remitted promptly and in full.
In most cases, the workers learn of the unremitted deductions late because their employers hide behind regulation that gives access to their fund status to the scheme trustees.
Workers should have unrestricted access to their pension contributions either directly from the fund managers or the trustee.
The regulator should, for instance, introduce a real-time digital tracking and monitoring system where employees can instantly verify their pension deductions have been remitted, receive automated alerts via SMS or email when contributions are made and lodge complaints immediately when discrepancies arise, prompting regulatory intervention.
The regulator should mandate regular audits of employers’ pension remittance records from time to time by independent bodies to ensure compliance.
This would facilitate implementing and strictly enforcing compliance measures against defaulting employers. Currently, some organisations neglect pension obligations because penalties are either weak or inconsistently applied.
Introducing hefty fines for non-compliance, ensuring they outweigh any financial benefit an employer may gain from withholding funds and holding directors and executives of non-compliant entities accountable would ensure these organisations comply with the regulations.
The government may also place a requirement for institutions to deposit these funds into an escrow account managed by a neutral third party before salaries are disbursed.
This ensures that pension contributions are immediately available to the relevant pension schemes, cannot be misused for cash flow management by struggling companies and are remitted before an employer can access tax benefits associated with pension contributions.
A dedicated fund could also be created to compensate workers whose employers fail to remit pension deductions. This fund would act as a safety net, ensuring that workers do not lose their savings due to employer negligence.
Employers who already fail to remit pension deductions may see the regulator’s proposal as a green light to continue their negligent behaviour.
If workers cannot access their savings, employers may feel less pressure to comply with remittance requirements, knowing that the consequences of their actions will not be immediately felt by employees.
It is therefore imperative that this challenge be addressed to avoid future challenge and ensure workers’ savings get rightful returns as and when they are deducted. Workers may view the proposal as a further encroachment on their rights rather than a protective measure.
