When the Paycheck Ends, the Pension Becomes the Lifeline

For a growing number of Kenyan workers, pension savings have become the emergency fund of last resort used to pay rent, settle medical bills, support relatives or finance a small business after leaving formal employment.

New industry findings show just how widespread the practice has become. In the inaugural SanlamAllianz Retirement Benchmark Report Kenya 2026, 53 per cent of respondents who left a job or business while holding retirement savings withdrew at least part of the money. Another 26 per cent took everything, leaving only 32 per cent who preserved or transferred their full savings for old age.

The pattern is not merely a story about poor financial discipline. It reflects a labour market where job security is fragile, incomes are uneven, and many households face immediate costs that cannot wait until retirement.

What the numbers show

The report found that more than half of those who withdrew retirement money later regretted the decision. Yet regret does not undo the withdrawal or restore the compounding growth that the money might have earned over decades.

Among workers who cashed out, the leading reason was business or farming activity, followed by daily living expenses, property and assets, healthcare, education, debt repayment and family support. A separate breakdown of the survey found that 33 per cent cited starting or supporting a business, 17 per cent cited living costs such as rent and household bills, while 16 per cent mentioned healthcare or funding another business.

The pressure is also visible before workers lose their jobs. About 23 per cent of respondents said that in the past year they had dipped into savings or reduced retirement contributions when money became tight. The figure rose to 29 per cent among earners aged 20 to 39, the group with the longest working lives ahead of them and therefore the most to lose from interrupted savings.

Why workers are cashing out

Kenya’s labour market helps explain the trend. Although the economy created jobs in 2025, most of the growth came from the informal sector, where employment is often irregular, poorly paid and largely outside structured pension coverage. The Kenya National Bureau of Statistics reported that total employment rose to 21.6 million in 2025, with the formal sector adding 101,200 roles; other reporting indicates that informal work accounts for the overwhelming majority of new jobs.

For workers in formal employment, losing a job can create an immediate cash crisis. Redundancy, resignation, business closure or a delayed next appointment can leave a household without income while rent, school fees, loans and medical expenses continue. In that moment, a pension balance may be the only sizeable sum a worker can access.

The problem is particularly acute for younger and mid-career workers. They may have decades before retirement, but they also face the highest burden of family responsibilities, debt servicing and unstable earnings. The SanlamAllianz study found that 39 per cent of working respondents experienced month-to-month fluctuations in income, making consistent pension contributions difficult.

There is also a trust question. Some workers doubt that money left in a pension scheme will be available, well managed or sufficient when they eventually need it. Years of concerns over delayed payments, governance and the reliability of long-term savings have weakened confidence, even where the legal framework protects benefits.

What the law allows

A common assumption is that workers can withdraw their entire pension when they change jobs. That is not generally the case.

Under Retirement Benefits Authority guidance, a member who leaves employment for any reason before the scheme’s early-retirement age may be paid up to 50 per cent of total accrued benefits, including employer contributions. The remaining balance can be transferred to another registered scheme, including an individual pension plan or a new employer’s scheme, or deferred until retirement.

Workers who leave on medical grounds because of permanent disability or critical illness can access 100 per cent of their benefits, while permanent emigration may also qualify for full payment subject to trustees’ approval.

This matters because the 50 per cent access rule is designed to balance two competing needs: allowing workers facing hardship to reach some money, while preserving the larger share for retirement. But when a job loss coincides with a household emergency, even a partial withdrawal can substantially weaken future retirement income.

The cost of early withdrawals

The financial damage from early cash-outs is often underestimated. Pension savings grow not only through contributions but also through investment returns and compounding over time. Money withdrawn at 35 or 40 loses years, sometimes decades, of potential growth.

Consider a simplified example: a worker who withdraws Sh500,000 at age 38 may solve an immediate problem, but that money could otherwise have remained invested until age 60. Depending on returns, fees and future contributions, the long-term loss can far exceed the amount originally taken out.

The wider risk is old-age poverty. Kenya’s pension system already faces a coverage gap, with many workers in informal employment lacking meaningful retirement savings. When formally employed workers also deplete their benefits after job exits, the number of people entering old age without adequate income rises.

A system under strain

The scale of early payouts is significant. The Retirement Benefits Authority reported that “leavers” workers accessing benefits before official retirement age received Sh74.57 billion in 2025. That was 53 per cent of the Sh141.76 billion in total benefits paid out, up from Sh52.73 billion in 2021, an increase of 41.6 per cent over the period.

The RBA has reportedly been considering reforms, including a two-pot system that would cap early access and restrict withdrawals before age 50. The idea is to create a limited accessible portion for emergencies while protecting a larger preserved retirement pot.

Such reforms could help, but they will not remove the underlying pressure. If workers lose jobs and cannot meet basic needs, restricting access to pensions may simply shift hardship elsewhere, into borrowing, asset sales or family dependence. Any policy response must therefore combine stronger preservation rules with better unemployment support, portable savings and financial guidance at the point of job transition.

What workers can do

For an individual facing job loss, the first step is not necessarily to withdraw pension money. Workers should ask their scheme administrator for a full benefits statement, including the accessible portion, the preserved balance, transfer options, fees and tax implications.

Where possible, transferring the benefit to a new employer’s scheme or an individual pension plan preserves the long-term savings base. Workers should also distinguish between a genuine emergency and a business idea: using pension money as start-up capital may be tempting, but it converts a protected retirement asset into risky working capital without any guaranteed return.

Employers and pension trustees also have a role. Exit interviews, clear withdrawal counselling and simple transfer processes could reduce impulsive decisions. The SanlamAllianz report itself recommends making it easier to transfer retirement savings between arrangements and providing guidance before workers decide whether to withdraw.

The bigger question

Kenyans are not cashing out pensions because they misunderstand retirement. Many understand the consequences perfectly well, 65 per cent of those who withdrew said they understood the impact on their retirement outcomes, but still need the money now.

That is the uncomfortable reality behind the statistics. Retirement savings are being used as a shock absorber for an economy in which job loss, irregular income and high household costs remain common. Until workers have stronger buffers outside their pension pots, retirement funds will continue to serve as both a future nest egg and a present-day lifeline.

The challenge for policymakers, employers and workers is to ensure that the lifeline does not quietly become the reason millions reach old age with too little to live on.