It’s a pity that policymakers take little interest in the plight of retirees and are wont to downplay the important role of the pension sector in Kenya.
How else do you explain the flip-flopping over the proposal to allow contributors to access their pension savings before retirement for purposes of purchasing residential houses? We all thought that following representations by experts and the pensions industry associations, the government had dropped that madcap idea.
If you allow individuals to withdraw part of their pension savings, what mechanisms are you going to use to monitor behaviour to ensure that the money is not squandered or invested in something else other than property?
Can’t these people see that this proposal could plunge pension schemes into confusion and unravel what is by far the most successful part of this economy’s savings sector?
Pension schemes in Kenya have an asset base of Sh 1.3 trillion the biggest proportion of which is invested in government securities and in capital markets. Indeed, retirement benefits schemes form the largest group of institutional investors in our money and capital markets.
If you allow members to withdraw portions of their savings before retirement, you may end up creating a liquidity crisis in the money and capital markets with massive implications for the stability of the macro economy.
The timing of the introduction of the new idea couldn’t have been inappropriate. With the advent of the Covid-19 pandemic, pension schemes have been feeling a great deal of heat having experienced poor investment performance largely as a result of a downturn in equity markets where most of their money is invested.
Indeed, most pension schemes have recorded negative performance ranging between minus 3 per cent and minus 5 per cent. Pressure on liquidity of pension schemes has also come from poor performance of companies, the sponsors of these schemes.
Liquidity of pension schemes has also suffered because of the high pay outs they have had to make to exiting members.
We must not forget that because of the corona pandemic, companies have had to implement redundancies, and widespread retrenchment of staff. Schemes have been under pressure to raise the cash-flows to pay out these existing members.
The upshot is that many of these employers have been in a position where they weren’t even doing the basic commitment of remitting monthly contributions to pension schemes.
Which is why I ask: Why would the government want to put more pressure on the liquidity of pension schemes at such a time? Clearly, the whole idea was not given serious thought. How I wish that some public-spirited individual or association would rush to the High Court to stop this implementation of this controversial idea.
But before I continue ranting, here is a bit of background about the whole saga. The idea of allowing scheme members to withdraw their savings before retirement to purchase houses came up as part of the tax proposal that President Kenyatta introduced in April this year as part of measures to cushion the economy from the effects of the pandemic.
Following intense lobbying by the pensions industry to relevant parliamentary committees, the idea was dropped. Months later, the proposals came back to the table this time as part of the Finance Act that was part of this year’s National Budget.
The upshot is that if the whole thing is not stopped in the High Court, it will become law. Where did the idea emanate from in the first place? I gather that in jurisdictions such as the USA, Australia and New Zealand, early access to pension savings are allowed.
In Switzerland and Australia, a member may directly borrow from the scheme but will be required to pay the loan before retirement. In most countries in South East Asia, such as Singapore and Malaysia, members can contribute to different products, including housing and medical protection.
But the mistake our people make is to copy and paste what happens elsewhere without looking at our local circumstances. It is clear that in those jurisdictions, contributions by members are much higher than is the case here. Our savings rate is just too low to sustain both pre-retirement benefits and benefits that accrue when a member exits employment.
These capricious changes in our pension laws only happen because we don’t have a national pensions policy. It is why the pensions sector in Kenya flies blind. We need a policy to anchor national objectives.
First, policy must make it clear that we believe in compulsory preservation of retirement benefits. Secondly, policy must say that when it comes to pension schemes, mobilising national savings ranks high as a priority than creating jobs for the housing construction sector.
Policy must unambiguously stipulate that pension schemes exist first and foremost to provide retirement security for the old. Period.
