For certain, you will eventually retire from work, so why not plan for it?

pension

Pension.

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Ultimately, the only certain thing about life is death. The same would be said about a life in employment. That the only certain thing about it retirement.

Life can generally be clustered in three broad phases: The birth to young adulthood phase; young adult to retirement phase; and the retirement phase. There are a number of life events to think about in the course of going through these phases, and one that we all can’t stay away from is the fact that we all desire to live comfortably, both in our years of work and when we get to retirement.

Therefore, it is paramount for us to think of sustaining a lifestyle. One that is fulfilling both now and in future. Most of the time, we go through life without necessarily consciously thinking about it. 

We fund ourselves rather than get ourselves to where we are. A good number of us don’t plan for it. A wise man once said that no one is certain about the future, but the best way to tackle it is by creating it. And how to create it is through having a strategic plan.

The topic about retirement planning has been talked about across many platforms. Many have issued ways that one can plan for a successful retirement outcome, and indeed quite a bit about it has been published. But we still find that many people in Kenya are averse to the subject of retirement and planning for it. Published analysis has shown that many Kenyans are not saving for retirement, and those who are, are not able to meet adequate savings for retirement. This is more so among the youth.

Retirement

Insurance penetration is generally low in the country and so is saving in general. Little, if any, is going towards saving or investing for our retirement. Some of the reasons cited for the low pension coverage in Kenya has been our mind-set and culture.

In our human nature, we tend to prefer instant gratification and we often get blinded to the potential gains of delayed gratification. That is why one will prefer to dress and move around better today and struggle with it, rather than later when they can actually afford it.

The economic times we live in today have also played a role in the state of national savings among Kenyans. For many, disposable income is inadequate to cater for all desired utilities, in which case expenditure competes with savings, and most of the time expenditure wins.

Across the world, we are now experiencing changes in the labour market and employment structures, which is among the emerging issues affecting retirement systems. We now have contingent employment contracts, remote employment and work assignments, as well as the gig-economy. These are structures that don’t conform to the conventional employer-employee engagement, which then lead to difficulty in coverage of these people in ordinary employer based retirement schemes.

A significant percentage of the young population today are jobless. Though the job creation data shows otherwise, the levels of unemployment in the country still remains an itching discussion among the youth.

Unemployment

One may argue out that we are victims of both structural and frictional types of unemployment; structural in that today, most organisations and businesses have shrunk their demand for labour significantly in the wake of digitalisation and automation; and frictional in the sense that the government has done a bit to allow job creation and thriving of business to absorb young people, but this information is not with the intended target group, which is the youth.

Another thing is that in this day of technological advancement, information is readily available and easier to access. There are more channels of communication and distribution to reach the youth through digital interaction. With the increased industrialisation and thriving business environment, there is an escalated drive to push information about products and services to everyone out there, and the youth are often first recipients of it. A lot is getting to them; a lot to do with every other thing apart from retirement saving and preparedness for old age.

It is at this time that a lot more needs to be done in the way of public sensitisation and education about preparing for retirement. See, planning for retirement is not just about financial preparedness, but incorporates all other aspects, which touch on physical, mental, psychological, social and economic wellness.

The lifestyle and standard of life in retirement is multidimensional, and that talks a lot about the kind of knowledge that people will need to prepare for it. We need a better way of communicating to the young people on matters to do with retirement planning.

Perhaps it is the high time we shifted the reference from retirement savings plans, to retirement investment plans. Seeing that more emphasis is on how to grow the small bits of regular contributions towards a fund that one will live on in retirement, then it goes without saying that there is quite a bit going on as far as investment of these remittances is concerned. Perhaps it is time we shift the way we market and distribute the retirement savings plan from analogue to digital ways.

Retirement savings

Retirement savings or investments must make sense so as to make the list of worthy investment alternatives. Saving for retirement seems to not only be in competition with consumption, but also alternative investment options and saving platforms such as Sacco and mutual funds.

It is important we understand that every option one choses has its own purpose in one’s life. For instance, the purpose of Sacco savings is totally different from the purpose that a money market would serve in one’s life. The same for a retirement investment arrangement.

The industry will need to adjust to meet the growing and emerging needs of the population. More flexibility will make retirement investments attractive, especially to the growing young generation. For instance, we could have term retirement products or unit linked and even self-directed retirement investment products, which allow members to participate more in deciding where their money gets invested.

Retirement benefits schemes are invested in regulated asset classes and even the investment decision taken by trustees who manage these funds must conform to set limits in accordance with RBA guidelines. This cushions the members of retirement benefits schemes from adverse risk and exposures to market shocks.

Fund managers and approved issuers have, however, gone further to establish prudent methods of investing retirement benefits assets, thereby offering even more safety of member funds. It is for such reasons that retirement benefits schemes are therefore considered one of the safest retirement investment options one could get into.

Beyond this, retirement benefits schemes offer compounding interest credits over the period of investment, which members can capitalise on. This way, out of just a small contribution into a retirement investment account, one is able to grow their funds to a huge amount over a substantial period of time.

Remember, investing for retirement through a retirement scheme gives you access to a professionally managed outfit and allows one to accumulate wealth on a tax-free basis. The extra amount that one gets out of tax savings will amount to a substantial amount at retirement and will contribute to the total wealth that one arrives at retirement with.

Time is a key consideration in building wealth for retirement. The earlier you start investing for retirement within a retirement savings arrangement, the easier and cheaper it is for you.

Prudential Life Assurance Kenya Ltd offers a retirement scheme that accommodates all participants from both formal and informal sectors. 


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