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Pension puzzles that need urgent attention in Kenya

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Pension puzzles that need urgent attention in Kenya

95 percent of individuals who leave employment
95 percent of individuals who leave employment opt not to preserve their benefits. FILE PHOTO | NMG 

Money is a word that resonates well with you and saving is a word that your parents, teachers or relatives always (probably) talk to you about while pension or retirement is a word that you probably don’t take seriously (or you do, if you are ready to retire)

This is a 25-year old Millennial writing to you about pensions and retirement.

Did you know, through a Zamara survey of retirement benefits industry in Kenya, around 20 percent of the employed population is covered by a retirement benefit scheme. This is equivalent to 3.2 million people.

However, the vast majority of these simply participate in the National Social Security Fund (NSSF) where a low level of statutory contributions apply and too low to support an adequate retirement benefit.

There are around 20 million people who are excluded from any form of retirement benefit coverage. One may ask why we should care about these 20 million people. It is because they have no means of living a dignified life after they stop working.

This may mean that poverty among the future elderly will soon emerge as the driver for global poverty and an increase in dependency on the working population and youth in the future.

Assets in the retirement benefits industry have risen at an average rate of around 12 percent per year over the past 10 years to approximately Sh1.2 trillion in December 2018.

Most of the monies are put in traditional asset classes like fixed income assets, including government securities, fixed deposits, corporate bonds and equities.

On average, 95 percent of individuals who leave employment opt not to preserve their benefits and take the maximum available under the legislation as cash.

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This cash is fully used in less than three years (after leaving employment) on businesses that end up closing down or on emergencies like children’s school fees or repaying a loan.

Retirees are making sub-optimal decisions and are able to replace only 34 percent (on average) of their earnings before retirement as a pension per month, when the should ideally replace 75 per cent.

It is quite clear that our retirement benefits industry is growing and has its challenges. When comparing our retirement benefits industry with those around the world, there are similar challenges. Even though global pension assets crossed the $40 trillion-mark last year, global coverage and adequacy of pensions even in the developed world is a challenge.

In Bangladesh, only 9.2 percent of working age population are covered and in places like Nigeria, South Africa and Indonesia, the figures are 5.2 percent, 3.7 percent and eight percent respectively.

This is mostly due to illiteracy in areas to do with finance and retirement, which is a universal challenge. Around the world, the concept of saving for retirement does not resonate with the person and this is especially true with the youth.

In the US, the American College of Financial Services conducted a survey for those nearing retirement and in retirement and it was revealed that 75 percent of the respondents failed a 38-question retirement planning quiz.

A UK Adult Financial Literacy Capability Survey found that 22 percent of people in the UK are unable to read a bank statement and 40 percent do not understand the impact of inflation on the real value of money.

The situation of retirement benefits industry in Kenya is puzzling. In every puzzle, it is expected that the pieces are put in a logical manner to successfully complete the challenge.

In the case of pension, we have identified pieces of the puzzle that are already fitting well, pieces that need re-ordering or re-fitting, those that are missing and areas that need to be hit by a hammer.

We believe the pieces touch upon each of the following categories: adequacy challenge, including role of investment strategy; improving at retirement decisions; delivering value to members and effective member engagement.

Another one is rethinking pensions.

We hope to solve the pension puzzle.

The writer is Millennial and Actuarial Analyst at Zamara Group.

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World Bank pushes G-20 to extend debt relief to 2021

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World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.

“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.

He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.

The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.

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People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.

For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.

Debt burdens, already unsustainable for many countries, are rising to crisis levels.

“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.

ALSO READ:Global Economy Plunges into Worst Recession – World Bank

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Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans

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The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.

“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”

According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.

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Tighter Reins on Platforms for Mobile Loans

The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.

Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.

Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.

SEE ALSO: Central Bank Unveils Measures to Tame Unregulated Digital Lenders

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Scope Markets Kenya customers to have instant access to global financial markets

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NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options. 

This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.

The Scope Markets app offers clients over 500 investment opportunities across global financial markets.

The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.

The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).

The platform also offers an enhanced client interface including catering for those who trade at night.

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The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour;  Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).

The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.

Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”

He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.

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