The term retirement refers to the stoppage of active engagement from economic income-generating activities either from formal employment, informal employment, or self-employment mainly due to age or in some cases due to other factors like illness.
Retirement may be voluntary, statutory, or involuntary like in the case of early retirement due to redundancies, right-sizing, or other human resource management activities that may render a worker jobless. Career experts advise that an individual should have a clear intelligent and smart plan of life after retirement to maintain the same lifestyle or have a better life; hence the need for savings and investments either as a personal individual initiative and struggle like in the case of the informal sector workforce or through organized pension schemes like in the case of formal sector workers.
Retirement benefits ensure both economic and social wellness of the worker while mitigating against uncalled-for miseries in their sunset years. Regular contribution to superannuation funds guarantees regular income post active employment life for the pensioners which is more advisable than poor retirement planning such as expecting children to take care of aged parents or surviving on government handouts.
While government employees and those employed in the formal private sector enjoy guaranteed pension and provident funds to take care of them as well as their dependents in their advanced ages, their counterparts in the informal sector are unfortunately exposed to poverty in old age as some are even oblivious of the existence of such programs. The discussions surrounding structured pension systems have continued to gravitate mainly towards workers who either join a mandatory or statutory scheme like in the case of NSSF (National Social Security Fund) and retirement’s social security or other voluntary schemes with the guidance and support of their employers.
Constraints to the informal sector pension contribution
According to the OECD working paper dated January 2009, the informal sector workers are defined as generally those in low incomes or self-employed, working in small unregistered enterprises that belong to the hidden economy(do not pay applicable taxes) or the household sector, often on a part-time basis and in industries such as agriculture, construction among others. Such workers are not covered by a modern structured pension system as sometimes, even accessing them is compromised by lack of required registrations and compliance documents, poor tracking of their earnings since some are paid through non-bank modes such as cash or simply vouchers and cheques with payslips seldom issued. The proliferation of the informer sector enterprises which account for about 83.6 percent of the human capital in Kenya according to the Economic Survey Report of 2019 continues to be the main contributing factor to the low uptake of pension denying many a decent retirement while pushing the poverty index higher.
Both the government and individual citizens must appreciate and consume retirement planning products including joining a pension scheme.
However, all hope is not lost for the 21st-century informal sector worker as governments and other stakeholders are delving into the industry to include the said workers in the pension bracket. For this exercise to bear the much-needed fruits, it is important to understand the elements and demographics to be considered to enhance effectiveness which includes;
- Age: while individuals are encouraged to start saving from a young age so that they can reap the full benefit, many young individuals in the informal sector rarely take this seriously and efforts are needed to educate them and other age sets to join the Micro Pension schemes and mitigate against age-old poverty.
- Level of education- the level of education or literacy index has a direct correlation with the uptake of value-adding products and services. This explains why many informal sector workers are left behind by the financial planning wagon. Since illiteracy begets ignorance, ignorance begets apathy and poverty; efforts must be expended to enlighten the populace to fight old-age poverty.
- Gender- generally, women in the informal sector participate in either trifling or no-pay activities which include domestic work, a situation that renders them, non-pension participants, compared to their counterparts.
- Income amounts- economic security is one of the most cherished conditions that any individual wishes to attain in life to satisfy their basic needs both the present and the future needs. As such, the willingness to join a micro pension scheme is likely to increase for individuals with higher income as they seek to create safety nets for the future than those with meager pays.
- Geographical location- the tendency is that individuals working in the urban centers have more knowledge and information on several issues including retirement plans compared with the rural workers. Infrastructural challenges in the rural areas also curtail the information flow further, a situation that renders the rural workforce more handicapped and disadvantaged than their urban folks.
- Financial Literacy- Financial literacy is an indispensable tool for uptake and management of pension schemes in the informal sector and has a direct correlation which therefore calls for policymakers and industry players to invest in training and financial knowledge to stimulate the willingness of the informal sector workers to register and contribute to pension schemes.
There are various categories of pension schemes in Kenya that are regulated by the Retirement and Benefit Authority(RBA) namely; The National Social Security Fund(NSSF) which is an act of parliament and covers most employees in the formal sector with the exceptions of the civil servants who are covered under the public sector pension scheme.
Secondly, individual pension plans or individual retirement benefits schemes are recognized legal entities in Kenya and have a countrywide branch network established to address retirement saving needs. Voluntary Occupational Schemes are pension schemes set up by some employers for the benefit of their staff who are either in the formal or informal sector regardless of whether they contribute the statutory NSSF contribution currently amounting to kes 200 for both employers and employees per month.
Thirdly, is the civil service pension which targets civil servants and is a constitutional requirement. Again, we have the Mbao Pension scheme launched in 2011 to target the Medium and Small Micro Enterprises (MSMEs) sector and to help the members of the ‘Jua Kali Associations join the pension bracket by allowing them to save as little as twenty shillings regularly.
Governments world over has the lion’s share of responsibilities of educating their citizenry on sound saving designs to secure a decent future and ensure reduced dependency of the old retirees on handouts from children and themselves. Part of the economic growth strategy of a nation is embedded in the social-economic security of all citizens whether they are in the formal or informal sector.
How can the government influence and stimulate uptake of pension schemes in the informal sector?
These include but are not limited to; targeted media campaigns using the various platforms i.e. social media, print, radio TVs, as well other digital platforms, strategic collaborations with county governments, religious institutions, professional associations, saccos, and welfare associations to educate the citizens on the need and benefits of joining and contributing to pensions schemes. Removing bureaucracy and other barriers to encourage uptake by the informal sector workers is also advised.
Again, leveraging on technology to even register new members purely on an online basis will attract even those in remote and rural areas who may be unreachable but have mobile phones to download Apps and transact might create sizeable traffic of pensioners.
Both the government and individual citizens, whether they are economically engaged in the formal or informal sector must appreciate and consume retirement planning products including joining a pension scheme. The government can make it mandatory to ensure that aging citizens are not a liability to the extended families and itself by calling for innovations of pension schemes products development that are pocket friendly and still beneficial to those workers in the informal sector.