Category: Uncategorized

MONEY is a word that resonates well with you (unless you are living under a cave).
SAVING is a word that your parents, teachers or relatives always (probably) talk to you about.
PENSION, RETIREMENT is a word that you probably don’t take seriously (or you do, if you are ready to retire).
Hi there, this is a 25-year-old millennial writing to you about pensions and retirement.
Did you know (through a survey we have undertaken of the retirement benefits industry in Kenya):

Around 20% of the employed population is covered by a retirement benefits scheme. This is equivalent to around a 3.2 million people in Kenya.  However, the vast majority of these simply participate in the NSSF to which a very low level of statutory contributions currently apply and too low to support an adequate retirement benefit.  There are around 20million people who are excluded entirely from any form of retirement benefit coverage. One may ask why we should care about these 20million people, it is because they have no means of living a dignified life after they stop working (Now this could easily be you or your parents). This may mean that poverty among the future elderly will soon emerge as the driver for global poverty and an increase in dependency on the working population and youth in the future.

Assets in the retirement benefits industry have risen at an average rate of around 12% per year over the past 10 years to approximately K Shs 1.2 Trillion in December 2018. Most of the monies are put in traditional asset classes like fixed income assets (like government securities, fixed deposits, corporate bonds, etc) and equities.

On average 95% of individuals who leave employment opt not to preserve their benefits and take the maximum available under the legislation as cash. This cash is fully utilized in less than 3 years (after leaving employment) on businesses that end up closing-down or on emergencies like children’s school fees or re-paying a loan. Retirees are making sub-optimal decisions and are able to replace only 34% (on average) of their earnings before retirement as a pension per month, when the should ideally replace 75%.

It is quite clear that our retirement benefits industry is growing and has its challenges. When comparing our retirement benefits industry with those around the world, there are similar challenges. Even though global pension assets crossed the USD 40 Trillion mark last year, global coverage and adequacy of pensions even in the developed world is a challenge. In Bangladesh, only 9.2% of working age population are covered and in places like Nigeria, South Africa and Indonesia, the figures are 5.2%, 3.7% and 8% respectively.

This is mostly due to illiteracy in areas to do with Finance and Retirement, which is a universal challenge. Around the world, the concept of saving for one’s retirement does not resonate with the person and this is especially true with the youth. In the USA, the American College of Financial Services conducted a survey for those nearing retirement and in retirement, on retirement income planning and it was revealed that 75% of the respondents failed a 38-question retirement planning quiz. A UK Adult Financial Literacy Capability Survey found that 22% of people in the UK are unable to read a bank statement and 40% do not understand the impact of inflation on the real value of money.

The current situation of the retirement benefits industry in Kenya is puzzling. In every puzzle, it is expected that the pieces are put in a logical manner to successfully complete the challenge. In the case of the pension puzzle, we have identified pieces of the puzzle that are already fitting well, pieces of the puzzle that need re-ordering or re-fitting, pieces of the puzzle that are missing and pieces of the puzzle that need to be hit (by a hammer) on to the puzzle.

We believe the pieces touch upon each of the following categories:

• The adequacy challenge
• The role of investment strategy
• Improving at retirement decisions
• Delivering value to members and effective member engagement
• Rethinking pensions

In this series, my colleague and I will be taking you through each of these pieces in detail to outline the problem and how we can solve this pension puzzle.

By Arth Shah –Lead, Research and Development – Zamara Kenya

Hi there, this is 25-year-old millennial writing to you about pensions and retirement.

In a previous article, I took us through how the retirement benefits industry is doing in Kenya, and sadly, the current situation of the retirement benefits industry in Kenya is a puzzle.

And like every puzzle, the pieces are supposed to be laid out in a logical manner to successfully complete the challenge. In the case of the pension puzzle, we have identified pieces of the puzzle that are already fitting well, pieces of the puzzle that need re-ordering or re-fitting, pieces of the puzzle that are missing and pieces of the puzzle that need to be hit (by a hammer) on to the puzzle.

The first piece of the puzzle focuses on the challenges of pension adequacy.

A Pension is a monthly income that the retiree would receive from their retirement savings.

Adequacy in simple terms is the state of sufficiency.
Therefore, pension adequacy is when a retiree has sufficient monthly income to live a good retired life.
Experts of the retirement benefits industry around the world say that a sufficient pension is between 60-80% of the retirees last salary i.e. if the retiree last earned Ksh 100k per month then a monthly pension of between Ksh 60-80k is sufficient to live a good retired life.

From a survey done by Zamara that comprised of over 60,000 members of retirement benefits schemes, it was found that only 7% will have adequate pensions when they retire. (Dramatic Pause to allow that stat to soak in) The other 93% will be struggling to make ends meet during their retired life if they don’t have other retirement savings. You could be among the 93%. Below I outline a simple thing you need to do now to change the situation or bridge the pension adequacy gap.

Set a retirement goal

At the beginning of every year, we set ourselves a few goals for the year and these may range from something that gets your adrenaline rushing like bungee-jumping off a cliff to something that is relaxing to the mind, body and soul like sitting at a beach and reading 3 books.

There is a rule of thumb that says if you want to succeed, you need to set goals. Setting goals gives you the focus and direction to succeed. This rule of thumb is applicable to everyone and for any purpose. Imagine trying to open-up a business and you have no goal set. You will not be sure on whether having profits of a few thousands or a few millions is successful.

There is merit in setting a goal. The goal should be designed to be SMART i.e. Specific, Measurable, Attainable, Relevant and Time bound.

For a recently graduated 25-year-old like me, who also started working, thinking about retirement is nowhere near my list of accomplishments. But subconsciously I have already set a retirement goal. This is to lie down on a beach bed in my beach house sipping a martini with my wife next to me as we listen to the tides hit the shore.

To ensure that I meet this goal, I need to save for my retirement so that I can afford to buy that martini and the beach house.

As you think of your retirement goal, think of how you are going to achieve it and the answer will be start saving or investing. Here’s a simple tip on saving for retirement if you are in your mid-20s, save between 11% and 15% of the salary you earn. The magic number on how much to save for a mid-20 year old lies anywhere between 11% and 15% of your salary to get you to your sufficient pension at retirement.

It’s always better to consult a financial adviser/pension expert to get more personalized recommendations, but if you are not able to or don’t want to then ensure you are setting aside at least 10%.

By Arth Shah –Lead, Research and Development – Zamara Kenya

Below are options that you may consider in regards to managing your expenditure going forward depending on the benefit;

Utilize the appointed provider panel as the rates are negotiated/discounted

Take advantage of the direct access to specialists e.g. pediatricians, gynecologists, and dentists to avoid repeat visits to general practitioners.

Where practical, choose your providers wisely-Level B and C hospitals appointed by UAP Insurance are cost-effective and up to standard in terms of service delivery.

Review your bills before signing them to avoid cases of over-billing from providers.

Seek a second opinion, especially for prescribed procedures to ascertain whether it is necessary.

Where possible, make use of hospital packages (for example maternity packages) that give more value for money.

Enroll in Chronic Disease Management Programs and Drug Delivery Programs which offer treatment at subsidized rates.

Use your NHIF membership to subsidize your medical cover.

Participate in the scheduled health talks & wellness events to enable you to take charge of your health.

Make use of our free nutrition (improves diet) and counselling services (avoid/deal with stress). Practicing healthy living and incorporating exercise in your schedule helps to avoid the need for medical treatment.

In case of further queries, kindly do not hesitate to reach out to the Zamara team through the dedicated hotline; Dedicated Resource- 0726755492; Call centre Number- 0709 469111; Zamara Toll Free Counselling line: 0800-221-HELP (0800-221-4357)

The COVID-19 pandemic is shaking and shaping up a new normal around the globe with challenges and innovations that we have never seen before coming to life. At one end of the curve, we have seen a lot of people being unemployed and struggling to pay for basic necessities like food, rent or mortgage. And at the other end of the curve, we have seen people and businesses innovating and digitizing their processes to minimize their expenses to earn a decent income.

Even though it is very soon to say how the pandemic will reshape financial decision-making moving forward, it seems like we all will be taking very cautionary decisions so that we don’t incur greater losses on our savings and investments.

With all of this in mind, it is quite possible that your financial set-up (if any) does not meet your current lifestyle and needs.
We have already seen people downsize their budgets, considering emergency funds, pulling out their retirement savings to meet their daily expenses, etc. and all of these actions may seem justified to us (and some are) but are there better decisions that could be made? The answer is Yes.

And I could write many articles on the mechanics of personal finance — how to budget, use easy techniques to pay down debt, and perfectly allocate your retirement portfolio for age and risk tolerance. But most of you wouldn’t read it. It’s honestly very boring stuff and I would only be repeating what other writers have written about.
In this article, I will write about how financial decisions are made and how we let a few biases influence our decisions. This has a lot to do with who you are: your personality, your environment, your friends and family.

I need to do something! Back in those days (Pre-COVID), when driving back home from work, I usually find myself in traffic jams alongside Ngong Road. As soon as I see traffic building on this road, I often take other roads and you might have done this before to skip the traffic. Most of the time, this is almost very counterproductive as I end up taking a longer route, burning more fuel and also sometimes spending more time on the road if I get stuck somewhere. But moving and taking these “shortcuts” was more preferable than just sitting in traffic and doing nothing.

This phenomenon is called “Action Bias”. Our natural emotion during unprecedented times or unpredictable times is to immediately take back control of the situation and act or do something. It doesn’t matter to us whether that action is a good idea or not. We should simply do something.

This phenomenon is especially true in the finance world. When a crisis like COVID hit Kenya, it was quite natural for long term savers to abandon their investment strategy and pull out their savings or move their savings to less risky financial products. And this may not have been the best strategy.

What should you have done? Stick to your investment strategy. As a smart investor, you would have carefully considered this risk in the first case. Even though a pandemic like COVID was highly unpredictable and could have not been factored in a financial plan.

For now, talk to a financial expert. Make sure you have reliable sources for financial news. Take a drive through the not so busy Ngong Road. But do stay away from changing your investment strategy or consult an expert before doing so.

I was right! Another phenomenon that clouds our judgement in financial decisions is known as confirmation bias. This occurs when someone interprets a situation according to their own pre-existing beliefs.

A classic example of this is news on social media platforms. Social media users are faced with a lot of news sources, which vary in credibility. Fake news with their catchy headlines and unproven claims can become easily viral. Readers will read these stories which align with their pre-existing beliefs, and repost or share them on their social media, which spreads this misinformation even further.

Warren Buffet, a very well-known and legendary investor, put confirmation bias in a very simple way, “What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact.”

In the context of finance, confirmation bias can lead to poor investment decisions or choices. For example, let’s say there is an investor who has a good opinion of a company and chooses to invest in that company based on their opinion. The investor will selectively collect information, based on their opinion, to confirm that they were right in investing in that company. The company sees a fall in their stock price and yet, the investor’s bias will convince them that the drop is temporary and seek information to support their belief that the stock price will rise in the near future. And convince themselves that they are right.

The problem with this is that the investor’s bias will keep convincing them that the stock price will rise and in reality, the company’s stock price may never rise.
This bias is not immune to financial planners or experts, but financial planners are aware of this bias which normal investors may not be aware about. So, the tricks to breaking this spell is to seek guidance from skilled financial planners and experts and having a global view of what’s happening with your investments and listening to different points of view on your investments.

In conclusion

Yes, it is important to understand the mechanics of basic personal finance, but it is even more important to understand how we act, as people, in different or unpredictable situations. This pandemic is teaching us a lot about ourselves and the way we act or make decisions. The way we shake our hands, the way we work, the way we socialize is all changing and the same is likely to happen with our decision making for finance matters.

We should all be cognizant of how we think and make decisions before jumping in or out investment products so consult a credible financial expert.  And yes, avoid falling prey to unsound or biased advice.

The management of accounts receivables as a crucial corporate finance component has attracted a lot of interest by board of directors during the current Covid-19 crisis. Studies done show this is a global challenge, with many manufacturing firms and distributors showing high levels of account receivables as compared to their total assets. In most cases, such receivables represent approximately 40% of a company’s current assets. Poor management of account receivables generally lead to challenges such as an increase in cash-flow problems thus disrupting the daily operations of the firms. The key outcome of this includes inability to pay employees, pay for supplied goods and services and meet other statutory obligations.

In Kenya, the situation is not so different as highlighted above and has led to collapse of institutions in key sectors such as Agribusiness (Mumias, Muhoroni and Miwani Sugar companies), Finance Sector (Imperial Bank and Chase Bank) and the Service Sector (Nakumatt Holdings). It has been observed that in most cases the credit controllers still insist in using the same tried and tested receivables management procedures with the result being limited liquidity to finance growth. However, the situation should not be all gloomy with the advent of Trade Credit Insurance. This insurance solution compliments the institutions credit control policy and ensures that despite having receivables, the company is guaranteed that the same will not turn out to be bad debts. In essence, this allows the organization to aggressively grow their sales by selling to existing and new customers on credit resulting to a growth in their P&L and long term financial stability.

The Trade Credit Insurance protects your business against both commercial and political risks that are beyond your control. It shields a company’s domestic and/or foreign accounts receivables from non-payment caused by the following: Protracted Default (non-payment past due date/ inability to pay), Insolvency (as provided for by legislation under the Insolvency Act 2015 -Section 236), Political Risk (such as currency inconvertibility, license cancellation, public buyer defaults). The structure of the cover could be on a Single Debtor Policy (insures only one key debtor), Key Account Policy (insure on a named basis as few as 3 accounts, all the way up to 200 accounts) or Whole Turnover (Insures all of a company’s sales).

Administratively, as a risk mitigation measure the insurer usually monitors the financial performance and well-being of your customers and allocates a grade that reflects the health of their activity and the way they conduct business. In the event that your client cannot or will not pay you, you will be insured and indemnified up to the limit of your policy.

Despite the above, it is important to note that the Trade Credit Insurance Solution doesn’t extend to cover default penalties, customer disputes with the buyer that may result in withholding of partial or full payments by the buyer, amount owed by any government entity which cannot be declared insolvent and currency fluctuation risks.

By Fred Muchina

Optimizing on insurance can be an onerous task for any business, organization or even an individual. It is a balancing act between need and cost. That is why it is critical to get a strong team of experienced, professional consultants to help you through the process. Many professional indemnity/negligence claims arise from wrong advice of failure by your consultant to advise accordingly.
The role of a broker/consultant constitutes of the following: –

1. Risk Profiling
This entails understanding the nature of your business/operations to ensure that you get the correct covers in place, that give you the right kind of coverage.

2. Review and Gap Analysis A good broker/consultant will constantly review your risk as your business/organisation changes and advise on emerging risks, and changes that affect your insurances, such as laws (WIBA, Motor Vehicle Third Party Act, Finance Amendment Act, etc.) and developments (such as the impact of Covid-19), that are relevant to your operations, as well as availability of new products.

3. Cost Optimization Another key role of a broker/consultant will be to ensure you get the best value for money by balancing the cost and the quality of coverage. In some cases, organizations will just look at the cost at the expense of proper coverage. It is imperative that the broker/consultant highlight the pros and cons to a client, where the client has opted for a cover that the broker deems inferior. Another way a broker can save you money is by advising on covers that you may have in place that may have been taken by events, be outdated, or may no longer be required due to changes in law, business environment or needs.

4. Policy Review Your consultant will also advise of the implication of clauses, exceptions and warranties in the policy that may impact claim settlement.

5. Auxiliary Services Your consultant acts as your advocate in the event of a claim and other negotiations involving third parties. They also facilitate auxiliary services such as motor vehicle valuations and risk surveys. By John Nyaga