A new individual contribution pension scheme for the “jua kali” (informal sector) entitled “Mbao Pension Scheme” was launched by the Kenya National Jua Kali Co-operative Society Limited.  Targeting 8.5 million people in small and medium enterprises, it is expected that the scheme could become the country’s largest within a few years and may eventually expand to the East African region.

According to the Retirement Benefits Authority, currently only 15 percent of 10 million workers are enrolled in a retirement scheme.  70 percent of those who don’t belong to a scheme are in the informal sector, with the majority of informal workers retiring into poverty.  Additionally, statistics show that there has been a major shift from the formal to informal sectors over the last 10 years and this trend is expected to continue.

In the new scheme, informal sector workers will have to save at least KES 20 per day to earn a pension; returns upon retirement will be determined by the fund performance.  As contribution amounts are expected to be in small denominations, the scheme will use new technology to handle the large volume of small contributions.  Members will contribute through money transfer services and receive updates on their account via cell phone.

Experts say that the scheme may have difficulty reaching informal workers, due to the structure of the informal economy.  Plans to reach more workers include targeting structured groups through education campaigns.

The Insurance Company of East Africa (ICEA) is the corporate trustee of the scheme; Octagon Pensions Limited is the contracted administrator; Co-op Trust Investment Services is the fund managers; and the Kenya Commercial Bank is the custodian.

Source: Mwaniki Wahome, “Informal sector pension scheme launched”, The Nation, 16 December 2009,http://www.nation.co.ke/business/news/-/1006/823654/-/hf72e3z/-/index.html;The Nation, “Pension plan targets jua kali sector”, 23 October 2009, http://www.nation.co.ke/business/news/-/1006/676294/-/if7tgrz/-/index.html Rating.

Implementation date: 12.2009