Pension Inclusion Would Have Reduced Covid Livelihood Crisis

Kisumu Woman Representative Rosa Buyu (centre) and Gender and Public Service Chief Administrative Secretary Rachael Shebesh distribute relief food and non-food items to residents of Nyakach in Kisumu County on June 4. PHOTO | ONDARI OGEGA | NMG

June 23, 2020//-The Covid-19 crisis is exposing the deep cracks in the social fabric of our country and exacerbating the sharp divide between the haves and the have-nots in Kenya.


Although employers, and hence salaried workers have been impacted by the pandemic, the extent and scale of the stress this has caused our 15 million non-salaried workers has been disproportionately larger.

This raises important questions about the economic security of our vast informal sector workforce, and about the country we want to build.

One of the key reasons for the reluctance by the government to impose a blanket lockdown of the type implemented in some of our neighbouring countries is that it would have only intensified the stress among urban daily wage earners if they were unable to work and feed their families.

As is now evident across developing countries, the health risk for the working poor has been overshadowed by the income shock the pandemic has caused. Slum dwellers have reportedly been asking public health officials to test them for hunger instead of Covid-19.


The massive outpouring of support in cash and kind by individuals, corporates and service organisations like Rotary has of course provided much needed immediate relief. Although this is a hugely welcome intervention, civil society alone cannot sustain the level of support that our citizens will need if the threat of infection remains unabated for another few months.

The dilemma, as aptly expressed by none other than the President, is in creating a balance between protecting lives and livelihoods. Clearly, the choices before us are both limited and difficult.

The huge economic disruption that we are witnessing raises some fundamental questions. Why did our workers face such severe hardship within just a few days of the containment measures and business closures?

Why is it that each time we have a crisis in Kenya, the majority of our informal workers are unable to sustain themselves for even a few days without an income? What can prevent or reduce the hardship faced?

A sudden loss of livelihoods cannot be the primary cause for the desperation we see around us. After all, informal workers are a very resilient lot and have undoubtedly faced and overcome frequent setbacks over the years. The real problem is simply that most of them had near-zero savings.

With such easy access to credit from the rapidly mushrooming mobile lending platforms, we are witnessing a sharp erosion in the savings culture among Kenyans.

Today, most individuals don’t save, even if they can clearly see a committed expense in the near future. Instead of saving for it, they tend to simply borrow. This keeps them perpetually in debt and repayment of expensive loans tends to eat away any future surplus income that could otherwise be saved.

It is not surprising therefore, that when the pandemic hit Kenya, most people had little or no money they could fall back on. And within just a few days of income interruption, they just couldn’t afford to pay for food or rent.

Informal sector workers, who form nearly 85 percent of our workforce, are not eligible for a pension or any other social security safety net. If their current behaviour and attitude towards savings remains unchanged, Kenya will witness an exponentially larger and more sustained social and fiscal crisis in the near future – once our informal workers are forced to permanently drop out of the workforce in their old age.

At that point, unless they have saved enough for at least 20 years, they will face a long and terribly harsh retirement. If we can’t afford the fiscal cost of supporting them for even a few weeks today, we certainly won’t be able to afford to pay them a tax-funded social pension over two decades.

If on the other hand, a 30-year old boda boda rider in Nairobi had opened a pension account in 2010 and begun saving just Sh50 a day from his daily earnings, he would have accumulated nearly Sh300,000 by March 2020.

When the containment measures were announced in March, he could simply have withdrawn Sh10,000 per month from his pension account to sustain himself and his family while he waited for the containment measures to be eased and for work to resume without experiencing any economic stress or depending on cash or food transfers.

In the long run, he would have saved enough by age 55 for a secure and dignified old age, with a lifelong pension of around Sh20,000 a month.

This is equally true for the nearly five million urban informal workers (casual workers, domestic helpers, boda boda, taxi drivers and street vendors) as it is for the more than 10 million other rural informal workers across Kenya.

In the next 20 years, we will have over nine million Kenyans above age 60. Nearly 85 percent of them will not be eligible for a pension. A staggering Sh300 billion in today’s money terms will be required annually to pay them even a modest an old age pension. This will be challenging as it will consume most of our tax revenues and leave little for other important public expenditure such as health, education, and housing.

Fortunately, most of our informal sector workers are still young. As we cannot afford to fund a social safety net for them from tax revenues, we have no option but to actively encourage and enable them to save for their retirement and for emergencies. This requires an enabling ecosystem, a savings demand and easy, frictionless access.


Many of the key building blocks for comprehensive pension inclusion already exist in Kenya. Ideally, any Kenyan with a national ID and a mobile phone should easily be able to open her own digital pension account.

Thereafter a person should be able use her mobile to save, check her account balance, withdraw savings or file a complaint — regardless of where she lives or works over time.

Informal sector workers do not earn a regular monthly income. Therefore, strategies used for collecting pension contributions from salaried employees with regular monthly pay cheques cannot be applied to construction workers, farmers, domestic help, street vendors or casual workers — all of whom have very unpredictable incomes.

Non-salaried workers will therefore need a much more flexible solution that allows them to save as per their own cashflow. A street vendor or boda boda rider should be able to save Sh50 a day, a construction worker or domestic help could choose to set aside Sh500 a month and a farmer may prefer a lump sum Sh5,000 after each crop. A simple, convenient and flexible digital savings solution that allows contributions in line with income flows will be essential for success at scale.


Countrywide adoption will also require a gigantic effort on financial literacy. This will be challenging as we’re targeting people with modest formal education and low financial literacy.

On the flip side, the pandemic response has been marked by a spurt in digital communications and social media. Such platforms can be leveraged for financial literacy and to effectively reiterate the importance of savings.

Today, we stand at what may be a defining moment in our country’s history. We need strong political leadership, regulatory support and multi-stakeholder engagement to overcome some of the barriers to pensions and savings inclusion.

We don’t have a choice if we are to avert Kenya’s looming retirement poverty crisis. We need swift and collaborative action to safeguard the future of our society. If we can do this quickly and get it right, each Kenyan stands to benefit. Iif we ignore it, then we all stand to lose.

By Sundeep Raichura,  Group CEO of  Zamara Group

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