How To Shop For A Personal Pension Scheme

In the post where I shared Danson’s inspiring story, I promised to share with you information from at least 5 pension schemes in town, and my experience trying to get this information has been like pulling teeth. Of the 7 insurance companies I called, I only managed to get comprehensive information from two. In one instance, I was told that the pension people were out for lunch and they would call me back. A week later, it seems they are still out for lunch. Insurance brokers/agencies have not been helpful either,they were more keen to sell medical insurance to me.

This partly explains why pension uptake is low. No one is proactively selling pension products to Kenyans, and for a proactive buyer, pertinent information is not readily available on the website. For example, why have a web page about a pension fund that says nothing about the fund’s performance? Anyway. Rant over.  At the end of this post there’s a link with the two packs I received.

When you go shopping for a personal pension fund, it is important to consider the following:

1. The size and financial strength of the company holding the fund, and not just the pension fund. While the Insurance Regulatory Authority (IRA) has guidelines and regulations on how pension funds should conduct their affairs, a stable company is obviously a better option for your long-term nest egg. Sometimes smaller companies will post better returns than the big ones especially during good economic times, but a small fund also has limited buffer in tough times.
2. When choosing insurance companies, I favor listed entities, not because they are necessarily superior to non-listed companies, but because the additional layer of regulation that a publicly traded company has gives me some comfort.
3. Shop around. Look at 3 or 4 companies, and rank them as per the questions below.
4. Ask key questions. While all pension funds are guided by standard rules provided by the IRA, I did discover that some have differentiated themselves

Key questions to ask a pension provider: 

• How big is their managed pension fund? When you sign up for a personal pension fund (PPFs), the money is lumped into a fund under the company, because (rationally) your contributions by themselves cannot make up a complete fund.
• How has the managed fund performed over the last 5 years? Compare this across companies, and ask questions where one particular company’s fund is behaving in a manner that is significantly different from the rest. Why? Because PPFs have investment guidelines that are set by the IRA, so generally none deviates significantly returns-wise.
• Is there a minimum contribution amount? Pension contribution is voluntary, but some funds have a minimum contribution of Kshs 1,000.

This post is the second in a series of posts sponsored by the Retirements Benefits Authority, as part of the #kulegalega campaign, aimed at educating us how pension funds work and the importance of starting to save for retirement while you’re still young.