Economic policies form the foundation upon which pension funds thrive or falter. When the economic environment is favourable such that there is sustainable growth and inflation is kept in check, pension funds can fulfill their obligations to retirees. Otherwise, the financial security of pensioners is threatened.

The NSSF Act of 2013, which mandated an increase in NSSF contributions, was one of the new legislations that had a favourable effect on pension contributions in Kenya. This occurred in February of last year when the Employment and Labour Relations Court’s earlier judgment to halt the NSSF Act’s implementation after finding it illegal was overturned by a Court of Appeal ruling. The contribution rates increased from Sh200 to Sh600 to a maximum of 12 percent of a worker’s monthly salary, with the employer matching six percent of the worker’s deductions.

But this law did not bring a ‘happy-ever-after’. One year later, in February this year, the Supreme Court overturned the decision of the Court of Appeal that had declared that the NSSF Act 2013 was constitutional. The court held that the Employment and Labour Relations Court (ELRC) has jurisdiction to determine the constitutional validity of a statute in matters concerning employment and labour as provided in the Constitution.

More recently, in what appeared to be part of a solution to service the national debt, the government recently attempted to introduce extensive fiscal policy reforms, through the Finance Bill 2024. The bill would have directly impacted taxation, public spending, government operations, and public debt management. However, this was met with significant backlash from the public.

The changes were also designed to tackle a growing budget deficit worsened by inadequate tax revenue, escalating debt obligations, and rising expenditure needs. The economy, however, was grappling with issues such as low productivity, high unemployment, and a cost-of-living crisis, driven by a combination of geopolitical tensions, tight financial markets, environmental challenges, global inflation, and domestic financial mismanagement.

Inevitably so, these economic stringencies have led to a constantly diminishing savings culture among Kenyans, who are left with little to save after various tax deductions have been made to their pay slips, not to mention their day-to-day living expenses.

The savings culture in Kenya has, historically, been very poor – the poorest in East Africa.

A 2022 report by Enwealth Financial Services found that only 12 percent of Kenyans have an established savings culture. Even though there has been a slight improvement, as seen in saccos’ 9.8 percent increase in deposits, according to KNBS Economic Survey 2024, we are not there yet. Inflation manages to creep up on people and water down their efforts towards this.

As of June 2024, the inflation rate was at 6.22 percent as per the Central Bank of Kenya. This increase in the prices of goods and services means less money is left to save.

But some policies are like double-edged swords. While rising interest rates have challenged businesses’ borrowing capacity from commercial, they’ve conversely presented opportunities for lenders, including pension funds, to earn higher returns at lower risk through government securities. This highlights the complex interplay of economic policies and their multifaceted impacts.

Retirement Benefits Authority (RBA) gave the nod to pension funds to allocate their investments to alternative assets like infrastructure, real estate, and private equity. Yet, government securities remain the favored class for the sector with a portfolio share of 47.5 percent as of December 2023, according to data from RBA.

Despite the noteworthy efforts to improve the pension sector, savers in the country face serious impediments such as increasing unemployment, inflation, growing public debt, high taxation, and other fiscal policies that threaten retirement planning and their pockets in general. Finding a way to balance these issues is key to maintaining or increasing saving potential, ensuring the safety of the pension sector, and guaranteeing retirees in this country a decent lifestyle after retirement.