How Kenya compares to other countries in pension savings
Friday March 17 2023
The February Court of Appeal ruling on the implementation of the National Social Security Fund (NSSF) Act, 2013 – which sought to increase pension deductions — was a significant turning point for Kenya.
Under the Act, the government seeks to build a bigger retirement pot, increase coverage and offer workers monthly annuities after retirement instead of the current one-off payment.
The implementation of the NSSF Act, 2013, although increases pension deductions, it ensures that Kenyans have the financial security they need in retirement, allowing them to enjoy their golden years with peace of mind.
The Act, in essence, reaffirmed the industry view that without progressive reform to the pensions and savings environment, the governments would face mounting pressure to provide appropriate social welfare.
Under this new proposition, Kenya now compares favourably across the continent.
Across East Africa, Tanzania has the highest contribution to retirement benefit schemes. The law provides for 10 percent savings of one’s gross earnings, with the employer contributing a similar amount to the NSSF.
In Uganda, the NSSF requires that everybody saves 5.0 percent, and the employer matches with a 10 percent contribution.
In Rwanda, the social security contribution is at 5.0 percent, with the employer contributing 3.0 percent.
In comparison, Burundi has a mandatory pension scheme for formal sector employees to the Institut National de Securité (INSS) at 6.0 percent, with the employer contributing 4.0 percent.
Further afield, the maximum contribution in Zambia is 5.0 percent, with the employee and employer each contributing 5.0 percent.
In Ghana, the law provides for savings of 13.0 percent of one’s gross earnings and the employer contributing 6.0 percent.
Although African pension funds are still relatively small in global terms, the accelerating pace of reform in the sector across the continent in savings for retirement and the introduction of private pension funds are likely to improve coverage and increase asset growth within the continent’s pension industry.
In the Kenyan context, expanding coverage to the informal sector will be essential even as the nation expands deductions to the retirement pot.