Study reveals why SMEs are reluctant to adopt pension schemes

Pensions Conference Expo

Guests follow proceedings during the Pensions Conference Expo at the KICC in Nairobi on November 28, 2023.

Photo credit: Evans Habil | Nation Media Group

Low incomes, limited awareness of retirement savings and a general perception that there is no reason to save are the main reasons why Kenyans in the SME sector are not taking up retirement savings plans, a new report has revealed.

Released during the inaugural Pensions Conference and Expo organised by the Nation Media Group, the report by Wylde International, a consultancy firm that helps entrepreneurs worldwide to grow and scale their businesses, found various reasons why SMEs are reluctant to adopt retirement savings. The Expo, themed 'Enhancing Social Protection for Inclusive Growth', brought together various stakeholders in the industry to discuss pension issues.

The study, which aimed to understand the uptake of retirement savings schemes within the SME space in Nairobi, collected inputs from business owners in Nairobi County through the use of questionnaires and in-depth interviews as primary data collection methods.

While the survey found that 97 percent of businesses are aware of the various retirement savings options available. However, the uptake of the available options by these businesses remains low, especially the uptake of voluntary retirement savings schemes.

Furthermore, the survey showed that "most SMEs are attracted to statutory schemes such as the NSSF, while they are reluctant to adopt voluntary retirement schemes".

Wylde further analysed reasons why SMEs do not consider having retirement savings.

In terms of self-retirement savings, it was established that 51 per cent see no need to save, as 45 per cent feel that it is expensive and 3 per cent feel that they have their own savings and are contented with their retirement savings.

Employers, Wylde said, noted that 42 per cent of their staff are not using any other retirement savings because they have NSSF, as 32 percent have personal savings while 27 percent do not see the need to have any retirement savings.

 “This means that the majority of Kenyans are still not exposed to the needs/benefits of these products. This is because of lack of awareness of the product and its usage by pension schemes,” said Kiriinya Kithinji, the director of strategy at Wylde International.

“Basically, employers notably feel that having retirement savings is a personal choice and not a business role. More enlightenment and training are needed to the employers on the role they play and the importance of employees’ pension.”

Further, the majority of SMEs in the study exhibited varying levels of awareness regarding different types of retirement saving plans. Specifically, 58 percent are aware of the retirement savings schemes to which they contribute, 39 percent are aware of a retirement savings scheme in which both they and their employer contribute, and 3 percent are aware of retirement saving schemes solely funded by their employer.

The findings on retirement savings awareness indicated that the majority of employers and employees are likely utilising individual retirement plans with which they are familiar.

The study also established that the most commonly consumed retirement savings scheme is NSSF –the statutory retirement scheme.

Interestingly, about 75 per cent of the respondents said they intend to use retirement savings to pay school fees for their dependents, and 40 percent intend to use their retirement savings to pay rent. Another 75 per cent said they intend to use retirement savings to meet medical bills, as 63 per cent intended to use their retirement savings to service loans, Mr Kiriinya Kithinji said.

"It's time to reshape the narrative around retirement savings, fostering a landscape where awareness meets action, costs align with means, and businesses of all sizes thrive in securing their financial future," Mr Kithinji explained.

Wylde International also asked the respondents who their most preferred brands in the retirement savings space were, and it found out that “about three brands take up almost 92 percent of the competitive market share with, Jubilee Health Insurance taking up about 53 percent.

The findings come at a time when Jubilee Health Insurance clinched the “best PR Campaign Award 2023 at the Marketing Society of Kenya (MSK) Awards. Additionally, the company's Head of Marketing Monica Chege was feted Marketer of the Year during the same award ceremony.

The "Best PR Campaign Award 2023" recognises the exceptional impact and effectiveness of Jubilee Health Insurance's AFYA MASHINANI initiative in revolutionising healthcare accessibility for underserved communities across Kenya.

Through the AFYA MASHINANI initiative, Jubilee Health Insurance conducted a comprehensive campaign to address pressing healthcare needs while empowering communities through education, outreach and quality medical services at no cost with over 10,000 people being impacted through this innovative campaign.

The CEO of Jubilee Health Insurance Njeri Jomo noted that the award ceremony was a double win for the company.

"We are very excited to emerge winners during the MSK Awards. These two awards demonstrate our company's unwavering commitment and passion to make healthcare services accessible to all. We will continue to innovate solutions that transform lives while empowering individuals to receive quality medical care," said Ms Njeri.

During the awards ceremony, Monica Chege, the head of marketing at Jubilee Health Insurance, shared, "The MSK Award Ceremony was truly a remarkable moment. I am humbled to have been named as the Marketer of the Year….These wins underscore our tireless dedication to craft impactful and innovative strategies that resonate with the community and leave a lasting impact, "said Ms Chege.