The implications are sobering. Without targeted interventions and deliberate efforts, millions of Kenyans face uncertain financial future in their sunset years.

Yet, amid these challenges, there is cause for cautious optimism. Over the last two decades, strides have been made in increasing financial literacy and consumer education.

Regulatory reforms have enhanced consumer confidence, and investment diversification within pension funds has bolstered the industry’s growth.

Enactment of the NSSF Act of 2013 marked a pivotal moment, contributing to a rise in the percentage of Kenyans saving through the NSSF from 9.5 percent in 2021 to 11.4 percent in 2024, as per the Central Bank’s Fin Access Household Survey.

Despite these gains, the gap remains significant, with over 13.9 million adult Kenyans still lacking retirement savings. Here are the key areas which are essential and should be embraced:

Embracing individual pension plan

This offers an individual an ideal opportunity to save for long-term retirement income. It provides access to formal savings schemes that ensure better protection, flexible contribution terms, and competitive returns. It is especially beneficial for the informal sector as it empowers workers within this sector to secure their financial futures and plan for retirement in a structured manner.

The plan is most suitable for employees in organisations without retirement benefits schemes, the self-employed, people working on a contractual basis, those with a seasonal income, small and medium-sized businesses owners and members transferring from employer sponsored group schemes.

Engaging the younger generations. Kenya’s youthful demographic represents an untapped opportunity for pension penetration. Younger individuals have different financial realities and expectations, requiring a reimagined approach to pension products. To appeal to this demographic, pension schemes must be presented as essential and rewarding components of financial planning.

Integrating digital solutions

As digital natives, the younger generation demands convenience and accessibility in financial products. Pension providers must embrace technology to make saving for retirement seamless and appealing. Use of Mobile app and USSD code, digital wallets, and user-friendly platforms can simplify the saving process, providing real-time updates and educational tools to highlight the importance of pensions in broader financial wellness.

Diversification to Alternative Assets

Although regulations permit investments in alternative asset classes such as private equity, commercial papers, and non-listed bonds and offshore investments, allocations to these areas remain relatively low and with good reason.

The basic idea of pension is liquidity and traditional asset classes heavily cater to that. However, fund managers with the right analytical expertise can cautiously increase allocations to alternative investments, balancing liquidity with the potential for higher returns and long-term growth.

There has been significant growth in offshore investment, which is attributable to the exchange rate movement where the shilling had considerably lost value against the dollar hence making offshore investments more attractive.

Membership incentives

Stakeholders should consider introducing incentives that enhance participation and foster a more inclusive industry, especially among contributors in the informal sector. One approach could be the introduction of tax holidays which would lower participation costs.

Alternatively, they could also consider the introduction of a certain percentage of the investment returns, say 25 percent, as annual bonuses payable to scheme members as in the Sacco industry. These annual bonuses will encourage people to save more with the intention of receiving higher rewards over time. This approach would eventually lead to long-term financial investment for retirement preparedness.

Pensions are strategic investments in financial security and economic stability. Increasing pension penetration in Kenya requires a multifaceted approach, one that combines robust policy frameworks, targeted interventions, and an unwavering commitment to innovation.