Insurers’ pension claims fall Sh860m on new law
Association of Kenya Insurers (AKI) chief executive Tom Gichuhi. AKI's annual report shows that pension claims fell to Sh23.65 billion in 2019 from Sh24.51 billion the previous year.
What you need to know:
- An annual report of the Association of Kenya Insurers (AKI) shows that pension claims fell to Sh23.65 billion in 2019 from Sh24.51 billion the previous year despite an increase in savings for retirement by members.
- Chief executive Tom Gichuhi has attributed the drop to an amendment to the Retirement Benefits (Occupational Retirement Benefits Schemes) Regulations in the financial year 2018/19.
- The move was intended to discourage the use of the pension funds upon the termination of their employment either by resignation or layoffs.
- Over the period, AKI reported average net interest rate for deposit administration contributions at 9.94 per cent.
Pension payouts by insurers dropped by Sh860 million last year compared to the previous year following a short-lived law that limited access to employer's contribution fund, a new report shows.
An annual report of the Association of Kenya Insurers (AKI) shows that pension claims fell to Sh23.65 billion in 2019 from Sh24.51 billion the previous year despite an increase in savings for retirement by members.
Chief executive Tom Gichuhi has attributed the drop to an amendment to the Retirement Benefits (Occupational Retirement Benefits Schemes) Regulations in the financial year 2018/19.
"The regulations affected the access of benefits hence the decline in 2019. Now, the law allows access to 100 per cent of one's contributions, but 50 per cent or 25 per cent must be deferred until 50 years of age," he said.
Reduce dependency rate
Under the law passed in June 2019, employees were only allowed 100 per cent of their contributions while the total employers' contributions remained locked until they clocked the retirement age of 50 years.
The move was intended to discourage the use of the pension funds upon the termination of their employment either by resignation or layoffs.
It was also intended to ensure the employees had enough savings to serve them in their old age and reduce dependency rate.
Most policyholders are unable to foot expenses, including medical bills and live to standards as when in employment.
Life insurance business
The regulations caused a heated debate among MPs and pensioners, leading to its dismissal after six months of its effect.
The report adds that the pension benefits represented 44.33 per cent of Sh53.35 billion total claims and benefits in the year that saw growth from Sh45.89 billion in 2018.
Over the period, AKI reported average net interest rate for deposit administration contributions at 9.94 per cent.
The entire life insurance business, according to AKI, increased by 12.14 per cent last year as gross premium underwritten for were registered at Sh97.85 billion up from Sh87.26 billion in 2018.
Out of this, group life premiums, which are organised by employers, increased by 8.16 per cent to Sh25.11 billion from Sh23.17 billion in 2018.
