Old age doesn’t have to be a curse. Here’s how to prepare for it.
As the evening wore on, the conversation turned to retirement. To the millennials at the table, that was still at least three decades away.
But that wasn’t as far away as it looked. Kenya’s first millennials, born in 1980, will be 55 years old on the first day of 2035. That’s just 17 years away, meaning a child born now will not even have reached the age of majority by then. When the first millennial was born, Kenya had a population lower than Safaricom’s subscriber numbers today.
There were three retirees at the table, all born before 1956. There were two millennials, both born after 1980. Between them was at least one solid generation, and the differences showed. On the one hand were people in the sunset of their lives, two of them living comfortably pensionable lives, and the third still working.
On the other were what the first saw as the instant coffee generation. A generation obsessed with an urgency of now, often described derogatorily. But hindsight is always 20/20. Even people who were reckless with money in their youth and still managed to live comfortably after they aged would still give such advice.
At the turn of the century, a few things changed in pensions laws in Kenya. One of the most significant ones was the law that brought the Retirement Benefits Authority as the industry regulator. In the last 17 years, the regulator has turned Kenya’s pension industry from a 50 billion shillings vehicle to a 1 trillion shillings behemoth.
“The only true curse of old age,” he said while telling no one in particular, “is loneliness.”
As social structures have changed, the retirement model of previous generations is dying. It will be impossible for children to live with their elderly parents in the future. It’s not just that land is a limited resource, it is also that our social norms on adulthood and marriage have evolved. Simply buying a home now isn’t enough of a safety net; a guaranteed income until death is.
Here’s why. There are about 30 retirement homes around Nairobi, most of them occupied by non-black Kenyans. A simple Google search reveals around 10 high-end ones whose monthly fee is higher than that of an apartment in upmarket Nairobi. One is so exclusive that that it only cares for 35 residents at a time, and has a rather long waiting list including bookings for as far as 2035. After a certain age, it becomes impossible for an elderly person to be adequately taken care of at home. That, and the loneliness can be debilitating.
My grandmother spent the last seven years of her life mostly sitting at the same spot in her kitchen, alone. Talking to her was extremely depressing, because her response was always that she was waiting to die. I think loneliness killed her more than the multiple health problems she developed, mainly because she had nothing else to do but wait to die. A permanent form of retirement, if you may.
Taking her to a retirement home would have been completely unAfrican but would have given her some company in her sunset years. In retrospect, that it was even considered as a choice was a small win. Still, the burden of paying for it would have fallen on everyone else because she had never worked a formal job, and never had a pension. In her time there were no individual pension funds.
Today, the RBA list of registered pension funds is at 1000 run by employers, and 32 which individuals can join. They have slightly different models, and as with all things money-related, it is best to read the fine print. There are two universal funds: NSSF and Mbao Pension Plan. The latter is one of the most intriguing pension plans around. It has existed since 2009; it has a bare minimum of 20 bob per day, 500 bob per month and 6000 bob per year. You can even guarantee your mortgage with it. Mbao is by far the largest individual pension fund, and it targets the informal sector.
Despite this, there are less than 200, 000 people voluntarily saving in such funds. In a country where 26 million people are between 15 and 64 years, that number is minute, and worrying. Social security will not be evenly distributed in future, and if governments have learnt anything from Greece and Detroit, it is that taxpayer-funded social security is an existential threat. So the most financially secure elderly in our time will mostly be those who held formal jobs, and those are scarcer than ever.
Most people don’t feel the need to save because it is not an immediate need such as university debt and bills. There’s also the quieter issue of trust in the financial sector as a whole. By design, retirement funds invest savings in long-term investments such as government securities and now, private equity. Perhaps the most renown of this is NSSF, which has a rather checkered history of bad investments. Add to that the fact that the financial industry is in a shaky place, trust-wise, and you compound the many reasons why even rational, discerning young Kenyans aren’t saving. Even fewer know of the individual pension funds, and the many ways that RBA, as a regulator, works to ensure you don’t lose your savings.
Even better, pension contributions are tax deductible (up to 20,000 shillings). You can reduce your tax by diverting it into pension savings.
Here is the full list of individual pension funds [Link]
Learn more about RBA and retirement on their Facebook page [Link]
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