Retirement confidence among Kenyan pension scheme members

Why we did this study

Disputes over retirement age keep reaching the Kenyan news, from judges contesting retirement at 70 to the Teachers Service Commission retiring teachers at 60. Behind them sits a plain question: how ready do working people feel to stop work?

Workplace pensions are an important source of income after work, yet in Kenya they have often been found too small to meet people's needs in retirement. Formal pensions also cover just 15% of Kenyans.

In November 2017 we worked with the social security study group at Strathmore University to ask members of workplace pension schemes how confident they feel about retirement, and what makes them more or less confident.

How confident members feel

Only 1 in 4 of the members we surveyed were very confident about their financial future in retirement.

Women were more likely than men to say they were not at all confident: 1 in 7 women against 1 in 14 men. For women, supporting more dependants other than their own children was strongly linked to lower confidence. For men there was no link.

We also projected pension savings for the typical man and woman in our sample, both about 38 years old, assuming retirement at 55. At current saving rates their monthly pension would cover the costs they expect, but it would be about half of their final salary. Global standards recommend 75%.

In every age group, land and real estate make up the largest share of what members have invested. Pension savings take a bigger share with age, but among those aged 51 to 60, land and property still account for more than half of investments. Assets that cannot quickly be turned into cash can leave people short in retirement, especially when health costs rise.

Among the youngest group, aged 21 to 30, 'save as much as I can' was the most common investment priority. That runs against the common view that young people would rather spend than save.

What makes a difference

The clearest finding is that people who had estimated what retirement will cost them were more confident, among both men and women. Estate planning and good current health were also linked to higher confidence.

Some things we expected to matter did not. Level of education, marital status and number of children were not linked to confidence. Neither was family health history, perhaps because many Kenyan families still count on harambee support from relatives and friends in a health emergency.

Some saving habits, such as keeping an emergency fund or saving monthly from salary, were linked to lower confidence. One explanation is that this money is set aside for near-term spending, such as Christmas, rather than for investment. Women who took advice from their partner were more confident.

Financial education did not raise confidence directly. It was, however, strongly linked to estimating retirement costs, to estate planning and to keeping nomination of beneficiary forms up to date. It was not linked to making additional voluntary contributions, or to how much people had saved.

The action of estimating retirement costs is found to be a positive and consistent factor for both men and women in explaining their confidence in retirement.

What this means

For employers and HR teams: 56% of respondents had received retirement planning education from their employer or scheme in the past year, while 66% had looked for it themselves. That points to a gap in how available or easy to reach workplace education is.

The report suggests starting financial education early in people's careers, making it relevant to each age group, and building in budgeting and working out what retirement will cost. It also suggests training couples together rather than the member alone.

For trustees and service providers, the report recommends measuring income replacement and showing it on member statements, so members can see how close they are to their own targets.

For members, the first step is to work out what your retirement will cost. Most respondents had not yet considered how much they would need for housing, food, clothing and medical care.

Most respondents (91.5%) were human resources professionals, so the results describe this group best. The next question is how working out retirement needs turns into more saving. The full report has the detailed tables, investment patterns by age and the full list of recommendations.

What we recommend

• Trustees and service providers should measure income replacement and show it on member statements.
• Financial literacy modules should cover budgeting, financial management and anticipating retirement needs.
• Start financial education early in careers, make it relevant to each age group, and cover spouses and portfolio building.
• Use websites, blogs and social media for financial education and member communication.
• Train couples together rather than the individual member.
• Lock in retirement savings to increase the total value of retirement benefits.