As the country joins the rest of the world in marking the World Labour day on May 1st, it is apparent that a majority of informal sector workers will retire without any form of pension.The pension’s penetration in the informal sector which employs 80 per cent of Kenyans remains at less than one per cent. The output of this sector contributes considerably to the economic growth of the country. The sector however, remains on the whole, unaccounted or underestimated. The income and continued employment of the informal sector worker is usually varying and uncertain. The uncertainty in their work reflects the uncertainty of markets, the recession or boom, the needs and whim of an employer, the political situation, changing policies and other factors.
In summary, the economic security of workers in the informal sector is dependent on a variety of factors over which they have no control. Unlike the formal sector employees who are shielded from economic insecurity by an employer or an institution, the informal sector workers have to face the risk on their own. The workers in the informal sectors who are left out from formal protection are vulnerable to all sorts of risks in regard to income, health and other socio economic indicators that could affect their lifestyle and economic wellbeing after they stop working.
A majority of the Informal economy workers are not covered by formal pension plans for a variety of reasons. One is the extreme difficulty of collecting contributions from them and, as the case may be, from their employers. Another major problem is that many of these workers are unable to contribute a percentage of their incomes to financing pension benefits and unwilling to do so when these benefits do not meet their immediate or priority needs. Informal sector workers also have little or no security of employment or income. Their earnings tend to be very low and fluctuate more than that of other workers.
Their most immediate priorities tend to include health care, in particular where structural adjustments measures have reduced access to free Medicare services like here in Kenya. They feel less need for pensions, for example, as for many of them old age appears very remote and the idea of retirement unreal. With a majority of the country’s working population not saving for their retirement, we could face a potential crisis in caring for our aged population in the next few years. Kenya already has one of the highest levels of old age dependency in the world, estimated at 56 percent, while old age poverty rate stands at 55 percent. Securing income at old age becomes imperative to all workers as cost of living is increasing and people are living longer due to health and better living condition. Unless we address the low pension penetration, we could exacerbate the growing issue of urban poverty.
Small businesses need to join umbrella pension schemes that will provide an avenue for sharing costs of running a scheme. It is critical for relevant informal sector umbrella bodies to begin sharing data of their members to enable pension providers target their members. Innovative solutions such as mobile based pension products allow individuals to plan for sunset years and a comfortable retirement with ease. Mobile based voluntary contribution can today address the needs of informal workers to save for an affordable retirement package that caters for their present financial situation. Over 90 percent of Kenyans are today active mobile phone users and a majority of Kenyans are mobile money customers. By harnessing the power of technology, we can assist informal sector workers Kenyans save for their future. Informal sector workers can put aside money for retirement either on a flexiblebasis by saving small value contribution, which they can afford.