By Vincent Ochoi
Formally employed Kenyans are now contributing more toward their NSSF Tier I and Tier II retirement savings accounts following the phased implementation of enhanced contribution rates under the NSSF Act, 2013.
This has sparked varied reactions, with some expressing concern about the impact on their salaries. While the short-term ‘pinch’ is real, the bigger picture tells a more hopeful story. This adjustment represents a long-term investment in financial security for life after work.
You see, our retirement landscape has primarily relied on community support, government and continued employment well past retirement age as the safety net for Kenyans. The revised contribution bands under the NSSF Act are designed to gradually strengthen pension savings and ensure that workers retire with more substantial benefits.
While this is relatively encouraging for the formally employed, it also raises a broader question: how do we ensure that workers in the informal sector are not left behind?
In a country where a significant portion of the workforce operates outside formal structures and mandatory pension coverage, retirement preparedness cannot rest on any single institution alone. This is where the broader retirement benefits sector players becomes essential.
Life insurers and pension providers have increasingly stepped in to complement public schemes by offering flexible, long-term savings solutions. These solutions allow individuals to build retirement wealth at their own pace, protect against financial shocks and create a predictable income after retirement. Together with state-run initiatives, they form a more complete and resilient retirement framework.
The real challenge, however, lies in the perception that retirement savings are a distant concern, easily postponed in favour of present needs. This is despite rising life expectancy, meaning that many people will spend fifteen to twenty-five years in retirement, years that require consistent income for healthcare, housing and daily living. Without adequate planning, retirees become financially dependent on family or struggle to meet basic needs. This is why insurance-based retirement solutions are critical safeguards.
Pension Plans are structured savings arrangements where individuals through personal retirement schemes (PRS) and/or through employer-initiated schemes (stand-alone/occupational or umbrella schemes) set aside money consistently throughout ones working life. These contributions are invested and grow over time so that by the time you retire, you have accumulated a dedicated fund designed to support you in your later years.
At retirement, one option is to use your pension savings to purchase an annuity from a life insurance company. In simple terms, you exchange your accumulated savings for a guaranteed, regular income, such as monthly payments, for the rest of your life. This provides predictability and financial stability in retirement. The other option is to go for a drawdown option, which, on the other hand, allows you to keep your pension savings invested after retirement with partial access to your savings made according to your preference. You decide how much to withdraw subject to the limits governed by Retirement Benefits Act, offering greater flexibility and control over your income. However, because the funds remain invested and withdrawals continue over time, there is a risk that the money could run out, particularly if investment performance is poor or withdrawals are too high.
Some of the key differences between these two options are summarized below:
Income Drawdown vs Annuity Plan
Income StabilityIncome drawdown offers variable income because payments depend on the performance of the underlying investments and the rate at which funds are withdrawn. As a result, income can rise or fall over time.
Annuity plans provide fixed or predictable income. Once purchased, payouts are generally not affected by market fluctuations, offering retirees greater security and protection against market downturns.
Investment RiskWith income drawdown, the retiree bears the investment risk. Poor market performance can reduce the value of the retirement fund and, consequently, the income available for withdrawal.
Under an annuity plan, the insurer assumes the investment risk. Income payments remain unaffected by market volatility, providing a more stable retirement income stream.
FlexibilityIncome drawdown offers a high degree of flexibility. Retirees can adjust their withdrawal amounts and modify their investment strategy to suit changing financial needs and market conditions.
Annuity plans are less flexible because the terms are generally fixed once the annuity has been purchased. Changes to income levels or policy terms are typically limited.
SuitabilityIncome drawdown is best suited for retirees who are comfortable taking on investment risk and who value flexibility in managing their retirement funds.
Annuity plans are more appropriate for retirees who prioritize certainty, stability, and guaranteed income throughout retirement.
SustainabilityIncome drawdown carries both longevity risk and reinvestment risk. If withdrawals are too high or investment returns are poor, the retirement fund may eventually be depleted.
Annuity plans eliminate both longevity and reinvestment risks for the policyholder. Once the annuity contract is in force, the insurer guarantees the agreed payments according to the policy terms until the annuity ends.
CIC Insurance Group offers a range of retirement-focused solutions designed to complement public pension contributions. Structured pension plans to allow individuals save consistently with tax-efficient benefits with consistent and guaranteed above industry average returns, while annuity products transform accumulated savings into guaranteed lifetime income. Income drawdown funds provide flexibility, enabling retirees to invest part of their savings while withdrawing in planned instalments.
Such products are valuable not only for self-employed professionals, small business owners, and informal sector workers who must take personal responsibility for their retirement planning, but also for formally employed individuals seeking to supplement statutory pension contributions, to build greater financial security in retirement.
Importantly, many modern retirement products allow flexible contributions, making long-term saving accessible even for those with irregular income streams.
CIC provides a convenient USSD service that allows customers to quickly access key information, transact and manage aspects of their retirement policies directly from their mobile phones by dialling *304#.
If Kenya is to build a financially resilient ageing population, several actions are essential. First, greater emphasis should be placed on the inclusion of the informal sector through affordable, flexible savings products. Second, making it easier for workers to build on their mandatory pension contributions with private retirement solutions would broaden options and improve overall retirement security.
It is natural to focus on what leaves our payslips today. However, true financial well-being requires looking beyond the present moment. Embracing both public pension reforms and private retirement planning is crucial if we are to shift from short-term discomfort to long-term confidence, ensuring that the years after work are not marked by financial strain, but by dignity and security.
Vincent Ochoi is the Head of Corporate Business at CIC Life Assurance
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