A pension plan is that payment that you and your employer make at the end of the monthly towards the money you will receive when you cease to work at retirement age.
In Kenya there is money your employer pays to National Social Security Fund (NSSF) and the rest of the money allocated to your pension is paid to a particular pension system that your employer has chosen. NSSF payments on their own would not be sufficient to sustain you in old age. Ofcourse this depends on your lifestyle.
If you are in employment you are always advised to look for an employer that offers pension plan. Why? Because I think the purpose of employment is twofold. It is to provide for your pension years and to empower yourself. When you are young you have all the energy to take any job but when you are old, you will be eating the fruits of your youth which is your pension. SO whilst you are still young you must ensure you are saving for your pension age.
Purpose of pension
Pension Plan Investment
The purpose of a Pension plan is to ensure that you maintain your lifestyle even when old. If when you are young you were driving and your house budget was Ksh 6000 per month, a Pension plan is supposed to sustain that lifestyle.
However, you might find your employer is not saving enough to sustain you in old age so you can opt to start another pension scheme. You could look into Investment companies around such as Britam or Insurance Company of East Africa or any just do your research as advised in my article How to Multiply Your Money.
How many Kenyans save for their retirement? Not very many. Most Kenyans earn money per day and they go and spend all of it. A majority save with unregistered groups but when their turn comes to be given the money they spend it all on their needs.
Retirement Benefits Authority has come up with a great scheme where one can pay kshs 20 every day towards their retirement plan. What a saver? You will be amazed at what kshs 20 per day can be in 20 years. So is there any reason why any Kenyan should not have a pension plan?
As I have described in my article 11 Investment Solutions for Kenya’s Biggest Problem, your pension plan is one source of passive income and so should not be withdrawn at any time before retirement.
So Is your Pension Plan investment or not?
The first rule in the Richest man of Babylon by George Calson is that one must save a tenth of their income. The point here is saving. You cannot be rich if you do not have a saving. Your pension plan is a saving for your old age. Whilst your working you have no access to it so it is safe.
The problem arises when you stop working either due to resignation or retrenchment before retirement age which is 65, your pension becomes at risk. This is where your money blueprint as described in my article The Culture of Investment in Kenya is tested. The Law in Kenya allows one to withdraw 75% of their pension before retirement age but the 25% remains till retirement age.
You see your pension is a saving. It is a saving that accrues interest over the years. That interest will also accrue interest so your savings is increasing every month because of compound interest. When you remove 75% of your savings, you are reducing your opportunity of having a wonderfull pension years like the ones we see on the adverts of Jubilee Insurance Kenya. If you do not have an investment culture inculcated in you, chances are you will remove your pension.
The rationale behind pension is that when you are old you do not have the energy to work, your pension plan payments will take care of you. So when you eat your 75% who will take care of you in old age? Your Children?
In the Richest Man in Babylon, it is stated that for one to amass wealth they must learn how to acquire, protect and multiply. So when you work and save through a pension plan you have learnt how to acquire, protect and multiply. But any time you withdraw or spend your pension, it is a sign you do not truly believe in protecting and multiplying your savings.
A pension plan is only one way of saving to ensure you have a passive income when you retire. It would be a waste to work for 35 or more years and because you did not invest a little money for your old age, you find you are being supported by your partner, children or larger family or society due to poor planning which normally leads to failure.
A Pension plan will always provide you with a better lifestyle than if you had not taken the trouble to partake of one.