Knowledge is Not Enough: Financial Capability, Behavioural Gaps, and Retirement Security in Kenya’s Evolving Pension System

Pension systems are in place to offer financial security during retirement, but retirement security is still a significant issue in policy. Financial literacy has been extensively advocated as a tool to better the outcomes of retirement, however, there is evidence that financial knowledge is not always followed by positive financial behaviour. The study investigated the financial literacy and economic security of the Defined Benefits Scheme (DBS) members under the National Treasury in Kenya as well as implications of the study findings for financial capability building and pension reform. This study used descriptive-survey research design, correlational and explanatory type. The population was a sample of 400 pensioners and in services civil servants who are members of the Defined Benefits Scheme and were obtained by stratified random sampling. Structured questionnaires and interview guides were used for the collection of primary data. Descriptive statistics, Pearson correlation analysis and Multiple regression analysis were used to analyse data by using the Statistical Package for Social Sciences (SPSS). Results showed respondents to have a moderate to high financial awareness and financial knowledge. However, implementation of financial practices like budgeting, regular saving, debt management, investment planning, and emergency preparedness were relatively low. The significant and positive correlations between the dimensions of financial literacy and the economic security were found in correlation analysis. The regression analysis showed that 41.4% of the variance in economic security could be accounted for by financial literacy. While financial education had positive impacts, many respondents still expressed low preparations for retirement, level of financial independence and financial resilience. The study shows that there is a substantial knowledge-behaviour gap amongst Defined Benefits Scheme members and suggests that financial capability goes beyond financial literacy when it comes to providing an understanding of retirement security. The results indicate that pension design is not the only factor that will shape Kenya's changing pension system's effectiveness and that financial ability of pension scheme members is an important factor. The study calls for increased financial capability programmes, linking financial education with behavioural interventions and financial education and planning for retirement to be linked to the overall economic transformation agenda in Kenya.

Financial Capability, Financial Literacy, Economic Security, Pension Reform, Retirement Planning, Defined Benefits Scheme, Kenya.

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