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Property or Pension? Picking the Best Retirement Plan

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Those saving to fund their retirement have quite an array of options. The two most popular options are either saving funds in retirement benefits schemes or loyalty to land, brick and mortar by purchasing property.

Nunua kashamba jenga ploti (buy a piece of buy land, construct rental units) has for long been the investment of choice for many people as a source of funds for their retirement.

The belief that property investment is a sure bet has gained considerable publicity among Kenyans, who believe that it will afford them maximum returns.

Retire to enjoy

Owning a home has also traditionally been seen as a measure of success, with the phenomenal rise in house prices over recent decades enabling many people to fund their retirements by selling up or investing in buy-to-let.

For many, income is the greatest financial asset. Thus, with average life expectancy rising, making the wrong decision about where to invest for retirement could lead to life-changing implications.

Continued gravitation by investors towards property investments and failure to explore pensions as a viable option is a huge disservice not only to the investors themselves but to the economy as a whole. Challenges arising from real estate investments have been highlighted in many forums but there is need for more information for people to embrace flexibility in future investment plans.

Aside from the government tightening the tax burden on property, it is now a norm to sell a property for far less what it was originally bought at. There is often a rude shock awaiting most Kenyans who purchase residential units or land with the hope that they will appreciate swiftly to sell at a huge profit.

Who owns this property?

Anticipated profits become elusive once the project commences as property values are never guaranteed to grow and a wide range of factors kick in over time. Property can also be time-consuming as it requires finding tenants, dealing with letting agents as well as arranging maintenance, repairs, and insurance.

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Kenya Bankers Association (KBA) reported a 13.7% drop to 62.2% in the demand for apartments for the first quarter of 2019. The slowdown in uptake has partly been blamed on the authenticity of property ownership documents with would-be buyers preferring to rent rather than buy for the fear of demolitions.

Placards warning against conmen selling land are a familiar sight. This problem is not relegated solely to cities, it has also seeped to rural areas. Many investors are often left with worthless title deeds.

Life is highly unpredictable. Emergencies that most certainly require capital arise more often than anticipated. When one has their finances tied up in real estate, converting that into cash is relatively difficult. Yet again, the illiquidity of real estate adds to its disadvantages.

To close a real estate transition the presence of several interested parties is paramount for success. Putting together needed items such as finances and paperwork further complicates the process.

Most investors taking on property fail to foresee hectic processes like obtaining permits, engaging surveyors and other legal issues.

Bancy Kaleli

Pension, in contrast, is a pretty relaxed affair as every Kenyan citizen qualifies to be under a scheme of choice, including those in informal employment. Pension has some of the most generous tax perks with tax relief at the point of contribution, on investment income and at the point of access.

Simply put, pensions basically allow individuals to make long-term savings plan with tax relief. This means that some of the money that would have gone to the government as tax goes into a pension pot instead. Additionally, to encourage more people to save for their retirement, most employers enroll their workers into a pension scheme as well as contribute to the fund.

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Unless one is unable to afford contributions or their priority is dealing with unmanageable debt, not having a pension plan is like turning down the offer of a pay rise to be enjoyed in retirement.

All said and done, investing is all about distributing money to benefit from a decent return at some point in the future. There is no reason for property and pensions not to complement each other as part of a diverse investment portfolio.

However, as retirement needs may vary per individual, it boils down to tactfully designing retirement plans that are aligned to these needs.

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BANCY KALELIhttp://www.businesstoday.co.ke
Bancy Kaleli is a Pension Consultant at Enwealth Financial Services Limited.
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