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pension scheme

Pension Scheme: Do I Need One?

pension scheme

Pension Scheme: Do I Need One?

The pension scheme discussion is surprisingly not common among young people starting out their careers. It is even sad when the narrative still holds for older people.

Since the onset of the Covid-19 pandemic, many people have had to alter their financial decisions. For some, this has come with catastrophic changes in their lifestyles due to the loss of a job or business.

Sadly, retirement can treat you even worse. In one’s youthful years, it is common to assume that one’s wealth will increase seeing that they are working hard, getting raises or growing their businesses. That cannot be further from the truth, however, even this ideology is short-lived.

While we are generally productive in our younger years, the same cannot be attested for when one is older and lacking in strength to be as productive.

Pension Schemes in Saving for an Unpredictable Future

The pandemic came with hard punches that sent most people off balance quite radically. From income disruptions to healthcare obligations, even those with investments felt a pinch with the negative returns that most portfolios fetched. Looking at retirement with the pandemic lens can help cast a glance at what that could look like if one is not prepared.

According to the Kenyan National Bureau of Statistics as of December 2019, the Gross Savings Rate stood at a meagre 5.4%. This sheds light on the poor saving culture we have in Kenya. South Africa and Nigeria registered 14.6% and 20.6% respectively within the same period.

According to a survey carried out by FinAccess in 2019, some of the top reasons why our Kenyan saving culture is poor is due to low and irregular income. While these reasons are easy to justify, there is no doubt that the savings culture needs to improve despite the low levels of income.

One important reason for saving is for retirement. This not only ensures that you substitute for the income that you were making in your youthful years that you may not be able to make in your old age, but also to afford you a comfortable life.

Benefits of Starting on a Pension Scheme Sooner

In Kenya, data from the Retirement Benefits Authority shows that only 21% of those working are in a pension scheme. This leaves an upwards of 12 million working Kenyans with no retirement or social security fund to finance their retirement.

Beyond the obvious which is having something to rely on when you retire, being part of a pension scheme or retirement plan can benefit you in this way:

Monthly Tax Reliefs

In Kenya, you get relief of up to Kes. 20,000 or 30% of your salary depending on whichever is less. This means a reduction in the total PAYE to be deducted from your earnings.

Compounded Interest

Looking at your present income, it might be easy to conclude that there’s not much you can accumulate even if you saved a fraction of it for several years. According to compounding, this is not the case. The earlier you get started on contributing towards your pension scheme, the more your money builds.


Lastly, your pension savings can become accessible to you even before your retirement age. In the event that you lose your job you can access your savings.


Your finances give you the capacity to pick a lifestyle. If they are cut off, that means that you many not be able to lead the lifestyle that you desire. This is even more real once you are retired. The pandemic has come with its fair share of roughness but I believe we can learn from it. For instance, preparing for the unthinkable is a great way to help you become frugal about your spending and save more towards investing in your future.

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