Demystifying Pensions

Every individual that aims at having a financially secure future should develop a saving culture. Investing in pensions is one such security.

A pension scheme is a type of savings plan where individuals put away money that will go towards ensuring a smooth transition into retirement. It also has favourable tax treatment compared to other forms of savings.

Pensions can be contributed directly by an individual or by an employer in the case of salaried employees and saving into one scheme does not mean you cannot save into another. The funds are held by a trustee until such a time as they are required by scheme members. As a registered member of a pension scheme, it is important to know the rules and regulations that govern this form of savings and the benefits arising from the same. In Kenya, pensions are regulated by the Retirement Benefits Authority (RBA) whose mandate is to regulate and supervise the establishment and management of retirement benefits schemes, protect the interests of members and promote the development of the retirement benefits sector. Additionally, RBA is supported by other governing bodies such as the Central Bank of Kenya, Capital Markets Authority, Insurance Regulatory Authority and The Actuarial Society of Kenya.

To access pensions upon retirement, a scheme beneficiary has several options such as: withdrawing the money in full, known as lump sum withdrawal or receiving regular payments over a period of time, known as an annuity which can continue under a surviving spouse in case of death.

Both options have benefits attached to them. Withdrawing a pension in full will be beneficial if a person is financially savvy and will put the funds to immediate good use. Lump-sum withdrawals essentially take the control away from your employer or pension service provider, giving you the autonomy of decision making as to what should be done with the money. On the other hand, regular payments mean a trusted party is holding the funds and can advise on proper ways of investing. There are laws that protect you as a scheme beneficiary in case of default. In a nutshell, the choice lies with an individual upon retirement and they should not be coerced into a decision. Invest sharp in your future retirement by joining a reputable pension scheme.