Kenya can utilise pension funds to attain social and economic growth

There is renewed public interest in pension matters in the country. This is largely informed by the current reforms being undertaken by the board and management of NSSF and the proposed National Social
Security Fund Bill 2012 that will likely be presented to Parliament next month.

NSSF, among other reforms, is recommending that member’s contributions be increased to 12 per cent of their salary, split equally between the worker and the employer.

Kenyans view everything NSSF with suspicion because of its past misdeeds and are thus skeptical about giving it any more of their money, especially since their reward usually is a cruel denial of basic material comfort at their time of need.

This denial was, however, not caused by the law, but by a tiny, greedy, heartless clique that mercilessly diverted the money meant for pensioners.

This scenario should, therefore, not play out against the present attempts to reform NSSF to transform it from the sleeping giant it is today to a world class pension fund that not only will help serve the pensioners but also spur economic growth.

The current board of trustees and management have shown in the recent past that they are ready to divert from the past and change the image of the institution.

The fund successfully held its first annual general meeting in 47 years recently and is pushing for reforms that would enable it to serve pensioners better.

We must ensure that the proposed reforms move us to a system based on a mandatory contribution of a reasonable percentage of wages and salaries.

Such a system should also allow for these contributions to be augmented by salary-sacrifice and other personal top-up contributions, mainly from higher income people. That is why we must all support these reforms.

The government, NSSF itself, the fund members and the financial industry must all play their part.

We should target a system where NSSF will ensure the prompt payment of benefits; develop a simple, transparent and sustainable pension system and encourage wide coverage and ensure that every person who has worked receives retirement benefit.

The government, on the other hand, should, through these reforms, ensure it helps put in place the necessary regulatory and supervisory framework; and establish a uniform set of rules, regulation and standards for administration and payments of pension.

Kenyans also must embrace the culture of saving where they can direct as much as they can into their long-term savings and investment pool through their pension accounts.

Review our regulations

The financial markets would need to come up with investment grade instruments that would attract the investment of pension assets for the country’s economic development:

The pool of pension funds and assets that will be generated by NSSF following these reforms should aid the deepening of Kenya’s financial sector and should be able to provide a platform for attaining the transformation agenda of government in the provision of infrastructure, energy, employment generation and the development of the real sector of the economy.

For this to happen, however, we must review our regulations on investment of pension fund assets to allow pension funds to be invested in infrastructural projects that would align with the transformation agenda and Vision 2030.

We seriously suffer from under-investment in economic infrastructure, particularly in relation to the transport and logistics tasks of timely supply to export markets, as well as the need to remove the chronic uncertainty that is preventing new investment in major power generation.
 

We have, for example, a massive potential for geothermal power based on huge reserves in the country.

The biggest hurdle in exploiting these reserves is the cost of transmission lines to major population centres.

We need, through these pension reforms, to link this to retirement income adequacy and the national interest.

Following the successful implementation of these reforms, the country’s pension system will become even more significant relative to the economy and with appropriate leadership and policy development, it can be harnessed to the national interest to simultaneously create the infrastructure, to underwrite Kenya’s economic and social future and meet the needs of the fast growing population.

It will be a missed opportunity if we do not harness at least a good proportion of NSSF’s potential increase in asset base to also create a strong economic and social infrastructure.

The writer is vice-president, Financial Risk Management, at Riyad Bank, Saudi Arabia, and worked as a prudential regulator of banks and superannuation funds in Australia