The Pensions Department under the National Treasury issues approximately Ksh 1.3 billion in monthly pension payments through Deposit-Taking (DT) Saccos, which are regulated by the Sacco Societies Regulatory Authority (SASRA). This amount represents 17% of the total Ksh 6.9 billion disbursed each month.
During a strategic engagement workshop with over 100 DT Saccos in Nairobi, Mr. Michael Kagika, the Secretary and Director of Pensions, highlighted the critical role that Saccos play in promoting financial inclusion. They facilitate pension payments to around 60,000 pensioners each month. Mr. Kagika emphasized that the partnership with Saccos is vital for mitigating financial risk and ensuring prudent management of pension remittances.
The engagement also evaluated the Saccos’ readiness for the upcoming transition to the e-Pension system, which is currently in development. SASRA CEO Peter Njuguna encouraged the Saccos to improve their use of technology to enhance the efficiency of pension disbursements.
The workshop was organized by SASRA and the National Treasury Pensions Department and focused on preparedness for transitioning to the proposed online pension system. It brought together CEOs and CFOs from regulated DT SACCOs. The workshop emphasized the crucial role that SACCOs play in pension disbursement. It also outlined the key contributions necessary for a successful migration to a new system, ensuring that all participants understand their roles in this transition. It also highlighted essential preparations required for a smooth transition, allowing for a seamless adaptation to changes, evaluating the readiness of DT SACCOs, and assessing their preparedness for the new system to ensure effective implementation.
SACCOs are seizing this opportunity to improve the efficient disbursement of pensions through their organizations.
They have emerged as leaders in mobilizing savings for millions in Kenya, significantly influencing financial inclusion, particularly in rural areas and the informal sector. A report from the International Cooperative Alliance (ICA) – Africa indicates that around 63% of the Kenyan population is connected to cooperative-related activities, either directly or indirectly.
Over the years, SACCOs and cooperatives have gained popularity, especially in rural communities that contribute to economic development, help reduce unemployment, and combat poverty. However, a report from an online business news platform revealed that as of 2019, only 20% of Kenyan workers were enrolled in a pension scheme despite substantial collections.
One reason for this low enrollment is the perception that pension products cater primarily to individuals in the formal sector. Additionally, there’s a notable lack of awareness regarding the various individual pension schemes offered by insurance companies in the country. The structure of the retirement benefits system in Kenya and the non-compelling laws surrounding retirement savings further complicate the situation.
Insurance companies in Kenya play a pivotal role in providing retirement benefits schemes. Numerous life insurance providers offer Employer Pension Plans, Umbrella Pension Plans, and Individual Pension Plans. An individual pension plan is a savings product allowing individuals to set aside funds for retirement.
These plans are particularly beneficial for informal sector workers, offering flexible saving arrangements tailored to self-employed individuals. For example, one can join the CIC Jipange pension plan, with contributions starting as low as KShs 500 a month, paving the way to financial independence during retirement.
The Retirement Benefits Authority (RBA) is responsible for registering and supervising these schemes to safeguard members’ savings. Joining a registered retirement benefits scheme ensures the safety of savings, as the investment decisions made by management companies are regulated to prevent malpractice that could endanger members’ hard-earned funds. Anyone over 18 years old, whether employed or self-employed, can enroll in an individual pension scheme by submitting an application, marking the beginning of their retirement planning journey.
