Retirees Turn To Loans During Pandemic To Meet Cost Of Living

The negative economic effects of Covid -19 have seen many retired Kenyans turn to loan facilities to meet their personal needs, support families, and pay for medical expenses.

A report shows that 60% of retirees saw their expenses increase with 78% of them saying their expenses had increased by 11-50% since the pandemic hit the country.

The main reason driving up expenses was the need to support family members who had lost jobs or businesses. To supplement their insufficient retirement income, the pensioners turned to Mobile app loans – 26%, commercial banks – 23%, Sacco loans – 14%, Chamas- 3%, and other sources. The repayments and high-interest rates putting a strain on their financial and mental wellbeing.

The research conducted by Pensions administrator, Enwealth Financial Services, and Strathmore University sought to establish the effect of Covid-19 on the financial and general well-being of retirees in Kenya.

It targeted pensioners from various schemes- 49% of respondents were between 61-70 years, 35% between 51 – 60 years, and the rest either below 50 or above 70 years.

Another finding was that 41% of the retirees had to pay cash for their medical bills, only 32% having medical insurance, and 20% used National Hospital Insurance Fund (NHIF).

“There is a call for Retirement Benefits Schemes to come up with Post-Retirement Medical funds, where members voluntarily contribute for medical insurance in their post-retirement years. This would help the retirees who are highly vulnerable to diseases, especially at such a time when there is a pandemic,” the report read.

On a positive note, many of the retirees indicated they had invested the money accessed at retirement, with 57% of them saying they had additional sources of income. The most common sources were farming, rental income, business, consultancy, lecturing, and dividends.

“The highest number of respondents, up to 34%, said they had invested in farming. It is interesting that retirees form a significant portion of the population that is driving the food security agenda in the country,” noted Lydia Wamalwa, Business Development and Training Officer at Enwealth Financial Services while presenting the report during a forum held online.

The financial challenges brought about by the pandemic will also affect future retirees. Individual pension schemes experienced a surge in withdrawals, reduced contribution rates, which in the long run will further lower the income replacement ratios, putting future retirees at risk of lower standards of living, prolonged years in the workforce, and taking riskier investments to increase the returns.

The Enwealth and Strathmore team recommends that the legislature should set up new rules and guidelines on the taxation framework with the aim of cushioning retirees, on top of what already exists.  They also suggest that the National treasury should set up a separate emergency kitty for cushioning the less fortunate and elderly. The kitty should have an annual budget allocation and a well-defined investment structure that will see the growth of the funds. This would also help to reduce the national debt liability.