A number of new cutting-edge financial products have been rolled out in the past few weeks, targeting the huge but unexploited retirement market, all with promises of offering a deserved rest to a class of senior citizens, leaving either formal or informal employment.
These products aim to provide a regular income to retirees or offer a platform for those with higher risk appetite them to invest in real estate and other asset classes.
Genghis Capital is one such firm that has launched two financial products that allows members of the public to lay a nest for comfortable lives while on retirement.
The Gencap Individual pension plan allows contributors to earn above-market average returns while the Gencap Income drawdown is allowed retirees to access their pension funds as regular income during their retirement. Their benefits are invested in a professionally managed fund.
Available figures indicate that a paltry 5 per cent of those who retire from employment are financially comfortable while the rest wallow in abject old-age poverty, relying on family support systems.
But increased urbanization and breakdown of extended family units has led to unsustainable lives for those who retire from formal or informal employment to rely on family.
“In Kenya, only 20 per cent of the working population have a retirement plan. The situation is worse in the informal sector where the pension coverage is less than 1 per cent,” said Martin Oduor, senior manager at Genghis Capital.
According to a report by Zamara Actuaries Administrators and Consultants Limited, there is low pension adequacy with income replacement ratio currently standing at 34 percent. This is against the recommended income replacement ratio of 75 per cent.
Mrs Alice Kamau, Product Development Officer at Genghis Capital notes that the Gencap Individual Pension Plan will ride on technology to make it more efficient and accessible to more members of the public.
“We intend to automate the products to make it possible for anyone in Kenya to have access through the mobile phone while ensuring high returns,” said Mrs Kamau.
Three years after rules governing pension-backed mortgage products were published, there has been little or no activity in this segment.
Now the Retirement Benefits Authority is stepping up a campaign to increase uptake of this product as a way of encouraging more people to save for retirement.
Retirement Benefits Authority Chief Executive Director Nzomo Mutuku says these are among policy reviews aimed at improving efficiency to increase uptake of pensions in Kenya.
RBA also plans to intensify awareness campaigns to push up uptake of pension services from the current 20 percent.
One such partnership is by Octagon and Alexander Forbes Kenya who announced an agreement that will see the Multinational bring international clients to Kenya’s Octagon with an 80-20 per cent revenue sharing agreement.
Octagon’s Chief Executive Fred Waswa said there is a huge pensions market in Kenya that is yet to be exploited. About 80 percent of Kenyans do not have pension covers, which is blamed on low awareness and lack of innovation blamed for the low uptake.
The RBA has been reviewing its regulations to allow members of pension schemes to utilize a portion of their accrued benefits as security for a mortgage.
The Retirements Benefits Authority is also targeting to tap those in the informal sector, most of who have shunned pension due to cost concerns and product offering.
This is by reviewing the policy and regulations to improve accessibility and ease the pension claiming process.
Under the new regulations published in the Kenya Gazette, pension contributors are eligible to start applying for home loans using their savings as guarantee.
The entry into the market of pension-backed mortgages comes at a time when there is a high demand for housing, especially in the low-income segment.
These new products are expected to provide incentives for more individuals to contribute to retirement benefit schemes.
Players in the industry say that while the idea is good, it is up to financial institutions to come up with suitable packages.
However, there is a downside to the deal.
If there is a crash in the property market and prices fall significantly, pensioners (could) end up without both their life savings or house.
The use of pension savings as collateral comes after Treasury tightened rules governing how pension funds are to be invested, in a bid to better regulate and streamline pensions’ sector and guarantee better income to the scheme members after retirement.
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