As of 2024, it is estimated that over three million Kenyans reside in various countries around the globe, contributing significantly to the country’s economy through remittances. These remittances have been a crucial lifeline for many families in Kenya and have played a substantial role in the country’s economic stability. However, despite these contributions, many Kenyans abroad face uncertainty regarding their financial security in retirement. Recognizing this challenge, the National Social Security Fund (NSSF) has introduced the Haba Haba pension plan, a groundbreaking initiative aimed at securing the financial future of Kenyans in the diaspora and those in the informal sector.

A Growing Need for Social Security

The need for a robust social security system in Kenya has never been more apparent. Social security is a fundamental human right enshrined in the Kenyan Constitution and the Universal Declaration of Human Rights of 1948. However, only 17% of Kenya’s population currently enjoys social security coverage, leaving a vast majority vulnerable. According to the Kenya Bureau of Statistics, as of 2023, over 13.9 million adult Kenyans lacked retirement savings, a staggering figure that underscores the high dependency ratio in the country, estimated at 69%. This high dependency ratio places significant pressure on the working population and exacerbates old-age poverty.

The income replacement ratio, which measures the percentage of a worker’s pre-retirement income that is paid out by a pension program upon retirement, stands at just 40% in Kenya. This is well below the recommended level of 75%, highlighting the inadequacy of existing retirement benefits. In an interview with The Star, NSSF CEO David Koross emphasized that a well-thought-out pension scheme is essential to addressing this issue and reducing the country’s dependency ratio.

The Launch of Haba Haba Pension Plan

Launched in late 2019, the Haba Haba pension plan offers a flexible and accessible solution for Kenyans in the diaspora and the informal sector. The name “Haba Haba,” which translates to “bit by bit” in Swahili, reflects the plan’s approach to savings—small, manageable contributions that accumulate over time. Members can save a minimum of KSh25 a day, with the option to withdraw 50% of their contributions after consistently contributing for a minimum of five years. This approach is particularly beneficial for those in the informal sector, who may not have access to traditional pension schemes.

One of the key features of the Haba Haba plan is its accessibility. Registration, contributions, and withdrawals can all be handled via mobile phone, making it easy for anyone, anywhere, to participate. By dialing the Unstructured Supplementary Service Data (USSD) code *303# or contacting the NSSF via WhatsApp, individuals can register with just their first and last names and their government identification (ID) number. Contributions can be paid in person at NSSF offices or through the mobile money platform M-Pesa, further simplifying the process.

Inclusion of the Kenyan Diaspora

The Haba Haba plan is not just limited to those within Kenya’s borders. Recognizing the significant contributions of Kenyans abroad, the NSSF has extended this program to include the diaspora population. Kenyans living abroad can save from as little as $10 (approximately KSh1,300) per month, based on the current exchange rate. This initiative is a strategic move by the NSSF to tap into the economic potential of the diaspora, which has become Kenya’s leading source of foreign exchange earnings since 2017, surpassing traditional revenue streams like tea, coffee, and tourism.

According to the latest data from the Central Bank of Kenya, Kenyans living and working abroad sent home $414.3 million (KSh53.4 billion) in July 2024, the highest amount recorded since December 2023. This represents a 12.2% increase from the previous year, highlighting the growing financial power of the diaspora. The cumulative inflows for the 12 months leading up to July 2024 remained steady at $4.4 billion (KSh568 billion), compared to $4.1 billion (KSh529 billion) during the same period in 2023.

The inclusion of the diaspora in the Haba Haba plan is not just about securing their financial future; it’s also about harnessing their economic potential to drive development in Kenya. Many diaspora returnees are investing in sectors such as real estate, technology, and agribusiness, providing returns for themselves while also bolstering the local economy, creating jobs, and contributing to sustainable development. These investments are crucial for Kenya’s long-term economic stability and growth.

Social Protection and Economic Development

The Haba Haba pension plan is a holistic approach to social protection, offering more than just a retirement benefit. It also includes social insurance cover, permanent disability cover, funeral expenses cover, and a sickness benefit cover. This comprehensive package is designed to cater to the needs of the informal sector, which constitutes a significant portion of Kenya’s workforce. By providing these additional benefits, the NSSF is not only addressing the immediate financial needs of its members but also helping to build a more resilient and prosperous society.

Koross emphasized that building a stronger social security system in Kenya is about more than just securing individual futures; it’s about laying the foundation for a prosperous and resilient nation. Extending social security coverage to Kenyans living abroad is a strategic initiative that promises substantial benefits for both individuals and the nation. By securing their financial future and contributing to Kenya’s economic growth, diaspora Kenyans can play a pivotal role in the country’s development journey.

Global Perspectives on Social Security

The importance of a robust social security system is not unique to Kenya. Globally, well-developed national social security systems have played a fundamental role in economic stability and growth. Countries with strong social security systems, such as those in Europe, demonstrate higher levels of economic resilience and social welfare. These systems reduce the economic strain on working-age individuals who often support elderly relatives, thereby increasing disposable income and stimulating economic activity.

A report by Cytonn Investments highlights that investing in a national social security scheme is crucial for reducing poverty and promoting economic development. By ensuring that individuals have access to retirement savings and other social protection benefits, countries can create a more equitable and stable society. In Kenya, the Haba Haba pension plan is a step in the right direction, offering a solution to the challenges posed by the country’s high dependency ratio and low levels of retirement savings.

Challenges and Opportunities

Despite the many benefits of the Haba Haba plan, there are also challenges that need to be addressed. One of the main challenges is raising awareness about the importance of social security and encouraging more people to participate in the program. Many individuals in the informal sector and diaspora may not fully understand the benefits of the Haba Haba plan or may be hesitant to commit to regular contributions. To overcome this challenge, the NSSF is working on public education campaigns to inform potential members about the advantages of the program and how it can secure their financial future.

Another challenge is ensuring the sustainability of the Haba Haba plan. The success of the program depends on the NSSF’s ability to manage the funds effectively and provide the promised benefits to its members. This requires strong governance, transparency, and accountability in the management of the pension fund. The NSSF has committed to upholding these principles to ensure the long-term success of the Haba Haba plan and the broader social security system in Kenya.

Conclusion

The Haba Haba pension plan represents a significant milestone in Kenya’s efforts to strengthen its social security system and secure the financial future of its citizens, both at home and abroad. By offering a flexible and accessible savings plan, the NSSF is empowering Kenyans to take control of their financial futures and reduce their dependency on others in old age. The inclusion of the diaspora in this plan is a strategic move that not only benefits individuals but also contributes to the country’s economic development.

As Kenya continues to grow and develop, the importance of a strong social security system cannot be overstated. The Haba Haba plan is a vital step towards building a more resilient and prosperous nation, where all citizens can enjoy financial security and a dignified retirement. Through continued investment in social protection, Kenya can reduce poverty, stimulate economic growth, and create a brighter future for all its people.

Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

27th August, 2024