A majority expects to live and be actively involved in social activities for at least 20 more years after retiring at 60 years and hence the need to know how much one needs per month to cater for upkeep expenses.
A study commissioned by LAPFUND found that Kenyans need an equivalent of 65 percent of their last month’s working life salary. Someone earning Sh15,000 at retirement, for example, would require about Sh9,750 monthly in retirement to maintain the same life they had during their working life, which translates to Sh195,000 in 20 years. For one earning Sh50,000, they would need Sh32,500 monthly or Sh650,000.
Complications arise when retirees cater for their grandchildren’s education and daily upkeep needs, with some still renting houses after retirement. Pension advisors aver that this money ought to come from passive income earned from money invested in government bonds, shares, real estate bonds and in fixed deposits during one’s working life. Informal sector workers without access to a savings scheme are a time-bomb for public- funded health and welfare schemes. They largely rely on well-wishers, live in slums and are prone to opportunistic infections due to their poor nutritional.
This has aroused a global conversation that now urges use of technology to create voluntary automatic enrolment schemes (AES) where everyone receiving a wage or salary as well as spending money automatically has a deduction made and submitted to their pension accounts. World Bank’s Policy Research Working Paper ‘‘Pension Funds with Automatic Enrollment Schemes: Lessons for Emerging Economies” by Mr Heinz P. Rudolph urges governments to formulate AES policies. These policies task employers to start deductions at three percent, which gradually increased by percentage point annually until it reaches 10 percent.
The money is remitted to a pension fund of their choice that in turn invests the same for the benefit of the member. Rudolph says information on AES should be publicly disseminated with employers penalised every time they fail to remit the monies. While the AES entry is mandatory, anyone willing to leave can do so voluntarily after a number of months. In Turkey, observes Rudolph, a law was passed where employers were ordered to place all employees under the age of 45 in voluntary private pension plans.
This was accompanied with an opt out option where every employee qualifies to receive a pension after attaining 56 years provided that they have been contributing to the voluntary scheme for at least ten years. Russia’s voluntary personal individual pension plan managed by its Central Bank has an automatic escalation feature of money deducted annually between zero to six percent in six years, but individuals have the right to increase deductions or opt out. In some countries, every AES policy attracts an equal “chip-in” contribution from government that enjoys access to cheap funds for key infrastructural projects, saving the countries billions of shillings that would have been spent repaying foreign loans. For young workers, investing in riskier assets such as shares remains attractive, but they must move toward more fixed income portfolios as they approach retirement age. AES, has proved popular among informal sector workers who feel empowered to have own schemes that guarantees them a pension.
