Retirement planning/ pensions in Kenya

Retirement planning. Planning for your retirement is a vital part of becoming financially free. Yes, regardless of your age, planning for your retirement should be on your agenda. As you save for big purchases remember to save up/invest for your retirement.

What is retirement planning?

Retirement planning is putting money aside for the time you can’t or don’t want to work.

In Kenya, early retirement is 50 years while the normal retirement is 60 years. This means that if you are in your early twenties, you have around 30 years to prepare for your retirement.

Why plan for your retirement?

1. To cater for your living expenses during retirement.

Planning for your retirement allows you to save up enough money to cover your bills during retirement. These bills include medical expenses and other bills.

2. To take advantage of compound interest.

When you start saving and investing for your retirement at an early age, you will reap the benefits of compound interest. Compound interest is interest on top of interest.

What is a pension scheme?

A pension scheme is an investment vehicle for your retirement. That is a place you can save money for your retirement.

Advantages of saving in a pension scheme.

1. You take advantage of compound interest. – Compound interest is interest on top of interest.
2. You get a tax relief of up to sh.20,000 per month for savings placed in a registered pension scheme. That is sh.240,000 per year.
3. You can use your pension savings to back up a mortgage. That is you can use up to 60% of your savings as security for a mortgage.
4. You can make regular flexible contributions. Some pension schemes allow individuals to save up as little as sh.500 and sh.100 per month.

 6 Basic Investing Strategies To Make You A Millionaire

4 types of pension schemes in Kenya.

1. Government-sponsored schemes. – like NSSF.

That is the social security plan

1. Individual/ personal pension – This type of pension is where you as an individual choice where to save for your retirement. Examples include CIC Jipange Pension Plan, Britam, Mbao (Juakali Individual Retirement Benefits), etc.
2. Employment/ occupation pension scheme – where your employer makes monthly contributions on behalf of the employee. This amount is usually from the employee’s salary.
3. Annuities

This is a contract between you and an insurance company. To be making contributions that can be either fixed or variable.

There are so many other pension schemes in Kenya. To protect your savings, make sure that the pension scheme is registered by the Retirement Benefits Authority (RBA).

Conclusion.

Should saving in a pension scheme be the only thing on your retirement plan? No, but it is a great start. Building an investment portfolio should go hand in hand with saving in a registered pension scheme.