RETIREMENT PLAN

Kenya ranks 55 globally, second in Africa in Allianz 2020 pension report

Pension assets under management stand at Sh1.2 trillion.

In Summary

•The 'Allianz Global Pension Report 2020' places Kenya second after South Africa which leads the continent and ranks 41st globally.

•Sweden, Belgium, and Denmark come out as the relatively best pension systems worldwide with total scores of 2.9, 2.9 and 3.0 respectively.

A Retirement Benefits Authority banner at a past public awareness forum on pension schemes.Photo/File
A Retirement Benefits Authority banner at a past public awareness forum on pension schemes.Photo/File

Kenya is placed at position 55 globally and second in Africa among countries with good pension systems, a report by multinational financial services company–Allianz shows.

The 'Allianz Global Pension Report 2020' places Kenya second after South Africa which leads the continent and ranks 41st globally.

Sweden, Belgium, and Denmark have the best pension systems  with total scores of 2.9, 2.9 and 3.0 respectively.

 

Kenya has a total score of 4.3 in the Allianz Pension Indicator (API) which rates countries on a scale of 1 to 7, with 1 being the best grade.

Other African countries captured in the report are Morocco at position 60 and Nigeria at position 64.

Kenya ranks 55th in this global ranking and second in Africa thanks to its still very young population,” Allianz notes in its report.

According to the firm, Kenya has one of the best starting conditions of all analysed countries, ranking fourth in this sub-index.

However, Kenya’s population in retirement age is set to increase from 1.3 million to 6.2 million in 2050 and in order to guarantee the long-term sustainability of the pension system, the ageing population should be account for.

This is by increasing the retirement age in line with future gains in life expectancy and by introducing a demographic factor in the pension benefit formula.

According to the report, the main issue of the pension system in the country is the insufficient adequacy where among the 70 countries  analysed Kenya ranks 61 in the sub-index.

 

This is due to the low coverage and benefit ratio of the public pension system.

Furthermore, limited access to financial services hampers the build-up of sufficient private old-age savings to cushion the lack of the public pension pillar,” notes Ludovic Subran, chief economist of Allianz.

The report recommends further urgent pension reforms and efforts to improve the access to financial services for a broader share of the population. 

Capital-funded retirement solutions are however under increasing pressure in the persisting low interest rate environment.

The Covid-19 pandemic has further exacerbated this trend by further pushing down yields.

The low yield environment has forced both pension funds and life insurers to explore alternative asset classes”, said Cameron Jovanovic, head of global retirement proposition at Allianz SE.

This push into alternatives enables benefit providers to capture the illiquidity premium that matches well with their portfolio duration.

Another strategy is to offload risk rather than chasing returns as longevity swaps, pension risk transfers and creative reinsurance set-ups become means of optimising the exposure taken on by pension funds and insurers,”Jovanovic adds.

In most countries, including Kenya, the coverage of the pension system is still very low and limited access to financial services hampers the build-up of sufficient private old-age savings to cushion the lack of the public pension pillar.

The harmonsation of the retirement ages of the various professions and adjusting the retirement age in line with future gains in life expectancy would improve the long-term sustainability of the pension system further, Allianz notes.

The Allianz Group is one of the world's leading insurers and asset managers with more than 100 million retail and corporate customers in more than 70 countries.

Pension penetration stands at a 20 per cent low in both the formal and informal sector, local industry data shows.

In the wake of Covid-19, a number of companies have applied for the suspension of contributions to pension schemes.

In April, pension industry regulatory–Retirement Benefits Authority (RBA) issued a notice allowing firms hit by the coronavirus to discontinue or suspend contributions until the pandemic clears, a move however feared could throw the industry into disarray.

Most hit sectors include hospitality, aviation and manufacturing.

According to RBA chief executive Nzomo Mutuku, many employers particularly those from sectors most impacted by the crisis are unable to remit contributions over this period.

The authority is closely monitoring the developments occasioned by Covid-19 pandemic, measures taken by government to contain its spread and the impact on the industry and will continue to update the industry as appropriate,” Mutuku said in a communique.

Pension assets under management stand at Sh1.2 trillion.