Pension

When speaking about pension, the assumption is that everyone knows exactly what it is about and how to go about saving for it, but as we all know, this is not always the case.

Many people think of property investments as a reasonable alternative to pension in that they assume it will provide a regular income before and during retirement.

But this may not always be the case.

A pension scheme, as opposed to a property investment, has some great benefits.

Pensions are the most tax-efficient way to save for the long-term for most people: you can get tax relief on your contributions at your highest marginal rate unlike investing in property, for example, as any rental income and capital gain from the property is taxed. 

Your pension investments pass to the next generation free of inheritance tax and there is no income tax until the money is taken out.

Kenyans are slowly but surely picking up the pace and investing in pension plans as more are taking the time to plan for their retirement and their future.

The trend has continued over the years with retirement benefits growing by eight per cent, from Sh1,080.1 billion in December 2017 to Sh1,166.49 billion in December 2018.

The great incentive for many who are planning their future through a pension plan, other than securing their retirement, is the potential saving that will also be contributed by their employer.

Because it’s a joint venture between you and your employer, you essentially get ‘free money’ from your employer.

Many often match your contribution towards your pension fund thus enabling many to ‘double’ their money.

No employer will contribute to a regular savings account but they will contribute towards a pension plan, and you get tax relief on any contributions to your pension, so your investment is given an immediate boost.

Because many Kenyans are opting for the pension saving route for their future, the number of companies contributing towards pension plans has therefore increased.

Employers contributions have gone up from Sh14,924,504,501 in 2008 to Sh63,137,495,023.79 in 2018, a difference of Sh48,212,990,522.79.

The pension industry had accumulated about Sh384.7 billion of employers' contributions between December 2008 and December 2018. 

Some workplaces may not have an internal system for pension plans thus they have outsourced. The major players in the pension market are Gen Africa, Britam, Old Mutual, and African Alliance.

Kenyans are not only saving into their pension schemes for their retirement but they are also investing the money they are saving.

The more popular option for Kenyans to invest in is government securities. This is followed by property while the least likely option is private equities.