Equity Life Assurance Kenya (ELAK), the insurance arm of Equity Group, has introduced a series of structured retirement benefit solutions designed to address the pressing issue of low pension savings in the country. This move comes as data from the Retirement Benefits Authority (RBA) indicates that fewer than 20% of Kenya's working population are actively saving for retirement, a statistic that highlights a significant vulnerability for millions facing their post-employment years.

The insurer's strategy is to provide targeted solutions for different segments of the population. These products aim to enhance financial security in a nation where a 2024 RBA survey revealed that only 41% of retirees felt their pension benefits were sufficient to cover their needs. The situation is particularly acute for the 83% of Kenyans working in the informal sector, who have historically been excluded from formal pension schemes.

Solutions for Every Stage

Equity Life has structured its offerings to cater to the distinct needs of various income earners and life stages, a direct response to the diverse economic realities of Kenyans. The three core products are the Equity Umbrella Retirement Fund, the Equity Individual Savings and Retirement Plan, and the Equity Income Drawdown Fund.

For the formal sector, the Equity Umbrella Retirement Fund offers a professionally managed plan for employers to provide retirement benefits and post-retirement medical cover for their employees. This is crucial in a market where many employees depend on their employers to facilitate retirement savings.

Targeting the growing class of entrepreneurs and workers in the informal sector, the Equity Individual Savings and Retirement Plan allows for flexible, self-directed savings. This product acknowledges the irregular income streams common in the informal economy and provides a structured way for individuals to build their retirement funds. Another product, the Golden Life Retirement plan, offered in partnership with Britam, allows for contributions from as low as KSh 20,000, with a guaranteed return of at least 5% per annum. Savers can choose between a pension fund option, which provides a one-third lump sum at retirement with the rest as a lifetime annuity, or a provident fund that pays out the entire sum.

For those already at retirement age, the Equity Income Drawdown Plan is designed to convert accumulated savings into a regular, steady income stream. This allows retirees to manage their finances while their remaining funds stay invested for potential continued growth.

Addressing Kenya's Savings Challenge

The launch of these products is set against a backdrop of significant challenges in Kenya's retirement landscape. A low savings culture is prevalent, with only 14.2% of the adult labor force saving in retirement benefits schemes, according to research by the Federal Reserve Bank. This is compounded by a lack of financial literacy, high unemployment rates, and market volatility, which can erode savings.

Culturally, there has been an overreliance on traditional assets like land or support from children for old-age security, models that are becoming increasingly unsustainable with rising living costs. Equity Life's initiative aligns with a broader push by both government and private sector players to foster a more robust savings culture and expand pension coverage, particularly to the informal sector.

To incentivize uptake, the Equity Umbrella Fund and Individual Savings Plan offer tax advantages. Contributions of up to KSh 30,000 per month are tax-exempt, and benefits may be accessible tax-free upon retirement, providing a significant financial benefit for savers.

Strategic Importance for Equity Group

Established in January 2022, Equity Life Assurance Kenya is a key part of Equity Group's diversification strategy. The move into insurance and pension management provides the group with a stable, long-term source of capital, which is less susceptible to the market fluctuations that can affect bank deposits. Angela Okinda, Managing Director of Equity Insurance, noted in a March 2024 report that life insurance and pensions offer long-term capital that diversifies the bank's portfolio. Since its inception, ELAK has reported strong performance, delivering above-inflation and above-market returns on its retirement benefit arrangements. As of its third quarter ending September 2023, Equity Insurance had recorded a 296% growth in pre-tax profit. This performance underscores the significant market opportunity and customer confidence in the Equity brand as it expands its financial services ecosystem.