Less than 10pc to retire comfortably on pension

Less than a tenth of pension schemes are providing sufficient benefits to comfortably sustain members in retirement, an actuarial consulting firm says, revealing the pain retirees undergo despite making lifetime savings while employed.

According to the survey done by Actuarial Services East Africa (Actserv), retirees in defined benefit schemes have it worse than their counterparts in contributory schemes.

The firm measured the adequacy of benefits using a ratio of income after retirement to income immediately before retirement, with an ideal level between 66 and 75 percent.

The firm surveyed 85 pension schemes (53 defined contribution and 32 defined benefit schemes) finding that only nine percent met the ideal level of income replacement ratio for members.

“Of the defined contribution pension schemes in the survey only 13 percent seemed to provide adequate levels of benefits for individuals joining at age 25…while six percent of defined benefit schemes seemed to provide adequate levels of benefits.”

“For a large number of pension schemes, it would appear that members are unlikely to achieve an appropriate income replacement ratio in retirement. This would mean that members require to consider making additional savings towards retirement.”

The problem is also exacerbated by the relatively low returns that some schemes are getting from their investments, putting the onus on trustees to demand better investment decisions from fund managers.

“Apart from enhancing contributions or improving pension accrual factors, trustees may need to focus on improving investment returns and giving members better education on wise use of their retirement benefits,” said Actserv.

The inadequacy of the pension pay has therefore pushed many retirees into dependence on families for sustenance, especially when they have medical bills to foot.

The findings of the Actserv survey ties in with a recent one done by the Association of Kenya Insurers (AKI) which found that nearly 80 percent of workers want to start a business after retirement to continue meeting daily needs as high expenses and low income levels make it hard to save for sunset years.

The September survey, done on behalf of AKI by Research Plus Africa, also found that 19 per cent of workers feel that they cannot afford to retire, while 39 percent said that they view their children as old-age safety net.