Small and Medium Enterprises (SMEs) are the backbone of Kenya’s economy, employing over 90.0% of the total labour force and 30.0% of GDP. However, retirement planning takes a back seat in this sector and many employees end up without financial security post retirement. Umbrella pension schemes have emerged as a solution tailored for SMEs, offering an affordable and efficient way to provide retirement benefits.
An umbrella pension scheme pools contribution from multiple employers into one fund managed by a professional provider. This model allows SMEs to bypass the high costs and administrative complexity of standalone schemes while their employees have structured retirement savings. Providers like Cytonn Pensions, Zamara and Enwealth have designed these schemes with SMEs in mind, with flexibility and simplicity.
Cost efficiency is one of the biggest advantages of umbrella schemes. By sharing administrative and operational costs across participating employers, these schemes are much cheaper than traditional pension plans. This is perfect for SMEs which operate on tight budgets and cannot afford to set up standalone schemes. Employers and employees both get tax deductions on contributions which is an added incentive to participate.
Beyond cost savings, umbrella schemes simplify administration. The service provider handles all compliance requirements such as reporting to the Retirement Benefits Authority (RBA), maintaining member records and managing investments. This takes the burden off SME owners to navigate complex regulatory frameworks so they can focus on growing their businesses. For employees, portability is a big advantage. Employees can retain their pension accounts when they switch jobs and continue their savings journey.
Despite these benefits, adoption of umbrella schemes by SMEs remains low due to several challenges. Many SME owners lack awareness of the schemes and their benefits, while others perceive retirement planning as an unnecessary expense. Compliance concerns and the misconception that pensions are only for large companies further discourage uptake. For employees, limited financial literacy can lead to skepticism about long-term savings, affecting participation rates.
To unlock the full potential of umbrella schemes, targeted solutions are required. Providers must increase awareness through financial literacy campaigns tailored to SME owners and their employees. Simplifying the enrollment process and leveraging mobile technology for contributions and account tracking can also enhance accessibility. Government support in the form of incentives, such as tax breaks for businesses enrolling in umbrella schemes, could further accelerate adoption.
As more SMEs recognize their value, these schemes can drive widespread adoption of retirement planning in the private sector, creating a win-win scenario for employers, employees, and the economy at large. By addressing barriers to adoption and capitalizing on technological advancements, umbrella schemes have the potential to redefine retirement savings for Kenya’s burgeoning SME sector.
