By LUKE ANAMI

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Kenya’s pensions sector is facing a crisis of investor confidence after several companies defaulted on their repayment plans due to the Covid-19 crisis.

More than three percent of the contributors either reduced or suspended their contributions.

Now a section of the players is calling for bolder policy measures, including making pension contributions compulsory and significantly increasing the tax breaks for the sector.

“When Covid-19 broke out last March, there was panic. We saw quite a number of employers suspend or reduce contributions,” said Sundeep Raichura, Zamara Group CEO “From our client base, we had expected that maybe about 20 percent would reduce and suspend, but it came to between two and three percent.”

Kenya 47 million population, has 1,287 registered retirement benefits schemes with 1.7 million members. Some 3.2 million people are registered in schemes compared with 2.1 million Tanzanians, 2 million Ugandans and fewer than a million Rwandan and Burundians.

However, pension coverage in the country is still low, at about 22 per cent of the total labour force, Retirements Benefits Authority (RBA) data shows.

Since RBA was established, the industry has witnessed remarkable changes, but Covid-19 has threatened to reverse the gains made over the past two decades. A number of employers have resumed contributions.

Flow stemmed

“Some members suspended contributions completely, especially in the hotel sector. Many employers suspended or reduced contributions and others reduced staff salaries, cutting contributions to pension funds,” said Raichura.

“For those that have gone under, the schemes are being wound up and the money paid out,” he added.

RBA has overseen the introduction of individual pension schemes for the self-employed and those in the informal sector; umbrella pension schemes for employers; post-retirement medical fund; use of pension funds in mortgages.

The authority initially assigned 60 percent of pension funds to access mortgages and now, under a new law, use of 40 percent of these funds to buy a house.

But this has suffered in the past one year due to the impact of Covid-19.

“The other impact was on investment. The stock market has been really hit badly. So many of the schemes posted very low returns last year, but this year we are seeing a recovery.”

At least 80 percent of the country’s labour force in the informal sector are excluded from any form of pension plan.

“One lesson from the pandemic is that pensions can provide cover and cushion in crises such as this,” said Raichura. “There is a need for bolder policy measures, including making contributions compulsory and significantly increasing the tax breaks for the sector.”

Godwin Simba, managing director of Octagon Pension Service, says only three percent of Kenyans have pension cover.

“Of the 16 million working Kenyans, 83 per cent (13.3 million) are in the informal sector. Of these, 60 percent are aged between 18 and 35. Yet they do not contribute to pensions.

‘‘This is due to lack of public awareness and poor saving attitude among the youth,” said Mr Simba.