Pension for informal Kenyan traders

December 16, 2009
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, NAIROBI, Kenya Dec 16 – The local pension market is set for increased penetration, as players begin to develop sector-specific pension schemes.

On Wednesday, the Kenya National Jua Kali Co-operative Society launched the Mbao pension Plan. The scheme targets millions of informal and self-employed workers who for years have not had access to any form of retirement scheme.

The Mbao Pension Plan aims at increasing the number of people under pension schemes to over six million as well as getting more people to save for their retirement.

Speaking during the launch, Retirement Benefits Authority Chief Executive Edward Odundo welcomed the diversification of pension schemes into sector-specific ones.

“The Kenyan pensions industry it is only 15 percent of the workforce that is coverd and that’s just the formal sector. Now you can imagine the number in the informal sector that are not covered at all,” he said.

Pension schemes have for long been restricted to employed people as employers are required by law to deduct a percentage of their pay and invest through a fund.

The introduction of low-end pension plans is set to revolutionise the market. Through Mbao Pension Plan, individuals can voluntarily contribute as little as Sh20 a day via their mobile phones (Zap and M-pesa) and Co-operative bank.

Mr Odundo believes this provides a safe and alternative channel for more Kenyans to save regularly for a reliable and long-term retirement income.

“The micro small and medium enterprise sector is growing by the day and we at the authority believe this new scheme will put more people into retirement savings,” Mr Odundo said.

Kenya National Federation of JuaKali Associations Chief Executive Richard Muteti said that with the Jua Kali sector accounting for 85 percent of the new jobs in Kenya, the Mbao Pension Plan could go a long way in boosting the sectors contribution to the economy.

“Right now we are doing about 24 percent in terms of contribution to GDP but if we have more people joining the sector with a guaranteed financial future post retirement that figure may just as well rise,” Mr Muteti said.

He also believes that with such initiatives in place and the necessary support from the government, the Jua Kali sector could play a major role in becoming an industrial base for the country.

“In the Asian countries this is the sector that is the base of industrialisation but on the African continent there is a small problem of mainstreaming the sector,” he said.

“In Kenya we have woken up to a combination of support institutions that are bringing this sector to the fore to be known and exposed.”

Octagon Pension Scheme will be the administrators of the scheme while Co-op Trust Investments Services are responsible for its investment plans while ICEA are the corporate trustees.

Kenya Commercial Bank is the custodian of the pension scheme, which will be accessed through the mobile phone money transfer services.

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