Which is better for retirement: A pension plan or a life insurance policy?

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Have your finances have seen the light? Have they been approved by the deity of fleekness and have prospered in ways that shock and amaze? If yes, one can have both life insurance and a pension product as well. They will work harmoniously together and one can never have too many back up plans (can they?)

However, should you need to pick between the two strategies, here are 4 reasons why you want to go with a pension plan instead:

1.Pension plans are insanely regulated.

These are not the regulators we speak of...

Your life insurance plan is usually subject to regulation from the Insurance Regulatory Authority. Some regulation is always a good thing, it keeps the companies selling these investment products honest and providers a measure of protection and recourse for consumers. Having one regulator is OK.

What of 4(FOUR!!) regulators?!!


The typical pension product has quite the mix of players, each regulated by independent bodies. A pension plan often has the following players to manage the funds being invested

  • The pension product owner – usually an insurance company and they are subject to regulation by the Insurance Regulatory Authority
  • The Pension product itself – It’s management is regulated by the Retirement Benefits Authority
  • A fund manager – whose operations are regulated by the Capital Markets Authority
  • A Custodial Bank – regulated, of course, by the Central Bank of Kenya

To name but a few. Thus your pension product has lot’s more checks and balances to safeguard the funds being invested for the long term. It’s quite unlikely you’ll lose your retirement money in the next hot quail farming fad.

2. Pay the Tax Guy less!!(Legally too!)

Both Insurance and Pension products offer tax relief which means you (legitimately) pay less taxes. For insurance, this is capped at 15% of your annual premium or Ksh 60,000 per year (whichever is lower) while for Pension products, you can squirrel away 20,000 per month BEFORE the taxman touches you income. So if you earn, say, 100k per month, and you put away 10k for pension, your taxable income is now 90k, (so pay less tax!!)

3. Security of funds.

You are investing for a 40+ year window. The last thing in the world you need, is for you to be approaching your retirement age, knowing your golden parachute is just about ready to deploy, only for the company your policy is with to go bankrupt. . Since pension money is more tightly regulated, the odds of losing your entire pension are greatly reduced due to the diversified nature of the investments. Also, the contributions have a 100% capital guarantee. The retirement benefit schemes managed by Insurance companies are guaranteed funds, which means that the insurance company guarantees the capital put into the scheme plus a minimum rate of return. This means that if money is lost in the course of investment, clients’ money is fully guaranteed and the insurance company bears the loss.

4. Not having a pension plan has you lose out on free money


I’m not even joking about this. Many companies have a policy of matching your contribution towards your pension plan. The comany would match your contribution (usually between 5% and 10%) of your monthly salary AT NO ADDITIONAL COST TO YOU!! So your retirement cash gets a boost, you get a bigger payout for your retirement, your company gets to claim bigger tax relief. Everybody wins!