Protect our sunset years

Retirement benefits schemes should give income replacement to members after their working life or provide support to beneficiaries of the member upon his or her death.

That is why every private company should have a retirement benefit scheme for its employees.

Saving through these schemes has significant benefits not only on retirement but during one’s working life in the form of tax exemption. But one can combine contributions into a pension scheme with other forms of investments to enhance the income replacement ratio after retirement.

A worker regularly contributes to a scheme and, on retirement, either on attaining the mandatory age or earlier, these contributions and accrued returns provide retirement income to the member.

Very few people live comfortably after retirement. 

A 2018 ICPAK study report, “Understanding Pensions”, says only six per cent of retirees are financially independent while 47 per cent are dependent on family and relatives, 31 per cent have to continue working to earn a living and 16 per cent depend on monthly pensions.

The problem is compounded by the rising old-age dependency ratios, changing family values necessitating retirees to secure their own financial support and increasing life expectancy.

For most people, the ability to get the right income replacement ratio (IRR) is a big challenge. The Retirement Benefits Authority (RBA) cites the IRR as below 40 per cent, against the recommended 75 per cent.

Reasons include the low penetration ratio, now at 15 per cent, and accessibility of pension when one changes jobs, cutting the adequacy of pension.

It’s good that RBA tries to boost the penetration and accessibility of pension schemes. For example, the establishment of the personal pension scheme is to help those without a registered outfit where they work, or business people, to save for retirement.

Mr Mutegi is an accountant in the private sector. [email protected].