High dependency rate, taxation and reduced take-home salaries are affecting individual’s savings, financial experts and investors now say, with majority of Kenyans falling into poverty after exiting formal employment.
A sizable number of family businesses and trusts are equally facing financial strains with threats of collapsing, according to personal finance management company Abojani Investment.
According to the Kenya National Bureau of Statistics (KNBS), only 12 per cent of the adult population in the labour force save for retirement.
Latest data shows Kenya’s age dependency ratio is averaging 68.6 per cent meaning for every 100 people in the working-age population, there about 68 dependents.
The Federation of Kenya Employers (FKE) puts direct dependency for formally employed individuals at an average five dependents per person.
This, as individuals in formal employment navigate squeezed earnings after government raided their payslips for statutory deductions to fund the newly rolled out Social Health Insurance Fund and affordable housing, reducing their take-home.
Each Kenyan is expected to pay 2.75 per cent of their gross income, the highest levy on salaries since independence, to the healthcare programme.
Kenyans in the informal sector are expected to pay 2.75 per cent of their earnings, to be determined by a means testing tool that is still non-operational.
Housing levy is taking 1.5 per cent of an employee’s monthly gross salary with employers required to match the same, to make it three per cent.
This is in addition to PAYE, and NSSF deductions with up to 30 per cent of salaries now going to taxes.
With planned increase in NSSF deductions, set to be six per cent of gross earnings, it is estimated that up to 40 per cent of an individual’s salary will go into taxes, further reducing take-home salaries hence cutting the spending power.
”Saving mostly depends on disposable income so if this reduces, then people will struggle to save. By the time you think of retirement, it becomes difficult. We need to inject liquidity into the market allowing the employed to have more disposable income which will stream down to other sectors mainly businesses,” said Robert Ochieng, CEO and co-founder Abojani Investment.
He spoke during the 4th Annual Economic Empowerment Conference in Nairobi. Karen Hospital Founder and chief cardiologist Dan Gikonyo said there is need to create the right environment to promote saving and investment, especially for young people, to help cushion society against economic challenges.
ICEA Lion Trust company CEO
Peter Wachira termed financial literacy as key in financial freedom and
securing the future while still young.
