Thursday, March 28, 2013

RBA tightens supervision of retirement schemes

Retirement Benefits Authority CEO Edward Odundo. Photo/FILE
Retirement Benefits Authority CEO Edward Odundo. Photo/FILE 
By Jackson Okoth

While the pension industry controls an asset portfolio worth over Sh264 billion, and contributes five per cent of the Gross Domestic Product (GDP), it is one of the least understood sectors.

Most people, especially the young, consider saving for retirement a venture not worth the bother, while those already saving for old age have no idea what happens in their pension schemes.

In the past, retirement benefit schemes were few and far between, with unscrupulous employers taking advantage of the unregulated environment to misappropriate employee benefits.

But that is changing. "Supervision of pension schemes has been a challenge in the past. But we have made tremendous progress in ensuring they comply to laid down regulations," said Mr Edward Odundo, Chief Executive of Retirement Benefits Authority.

The industry has also been growing over the past few years, largely due to a number of factors.
"We have had tax incentives from the Government which has boosted growth," says Odundo.

There is a growing awareness among Kenyans on the need to save for retirement. This trend is unlike in the past, when parents invested and relied on their children for support in their old age.

Apart from aggressive public awareness campaigns, and education on the need to save for retirement, pushed by a fully fledged corporate communications department at RBA, a huge demand for funds by the Government for its public projects has also created market for pension funds.

"A large percentage of pension funds are invested in Government treasury bonds-used mainly to finance projects such as infrastructure development.

Also on the list of growth factors is an upward trend by companies to issue corporate bonds and IPOs, creating room for involvement of pension funds.

"Pension schemes have been allowed to invest in the East African Region, where this is treated as local investment, thereby expanding the savings horizon of the various schemes," says Odundo.

Expected to set the pace for the entire pension industry will be a national pension conference in November, where all stakeholders will craft a policy document.

"At this conference, we shall be discussing a draft policy that includes introduction of a universal pension scheme," says Odundo.

Such a scheme is working in countries such as Botswana and South Africa where the state offers pension for all its citizens, funded by Treasury.

In the case of Kenya, the idea is to have a basic scheme, which provides pension to all citizens who attain the age of 65 years, to be paid by the exchequer.

At the head of RBA, Odundo’s strategy involves setting up at least four pillars to ensure all citizens have a reasonable and sustainable standard of living upon retirement. There is a plan by RBA to construct at least four pillars, to ensure this objective is achieved.

The first pillar will be a universal pension scheme, a basic safety net that will cover all Kenyans attaining the age of 65 years and above.

The second pillar, already in place, is the National Social Security Fund (NSSF), a provident fund, where employees make statutory contributions. The third is the promotion of more pension schemes, where both employers and employees contribute.

stepped up
And the last pillar is the individual pension scheme plan, where an individual contributes.

"When all these pillars are in place, one is able to have a reasonable and sustainable level of living upon retirement. This is our vision," says Odundo.

RBA is pushing for a policy document that will realise this objective, including making it compulsory for one to contribute to a pension scheme.

Those already targeted are people in informal sector, which comprises more than 60 per cent of the country’s workforce.
urrently, there are more than 11 companies running individual pension schemes. Most of these are insurance companies, with products that also cater for people in informal employment.
Following the rapid growth of the industry, the regulator has also stepped up its supervision. Previously, its role has been to ensure compliance by the various schemes, to the laid down regulations and procedures. But following impressive compliance rates, the regulator has now scaled up to risk-based supervision.

"We are now looking at risks faced by various schemes after which we pre-empt them before the scheme collapses," says Odundo.

The role of RBA is basically to supervise the establishment and management to monitor the various pension schemes on a quarterly basis, to ensure they are run professionally, effectively and efficiently.

At present, the regulator receives basic compliance documents on a quarterly basis from the schemes, ensuring money is there to pay out when one retires.

RBA is also receiving an increasing number of complaints from the public, an indicator that the level of awareness about operation of pension schemes is improving.

In the past, a number of pension schemes had problems with record keeping, while others were poorly managed due to poor supervision. Often many were avenues of outright theft of funds belonging to members.

But the arrival to the scene of RBA has streamlined the industry.

"There is a Chinese wall between members of a pension scheme and the employer, thus ensuring transparency," says Odundo.

Apart from routine compliance supervision, RBA has moved to risk-based monitoring, including checking on the funding levels, expenses and risks.

The law requires that the custodian of a pension fund only keeps five per cent of the portfolio in cash, while the rest is invested in equity, bonds, property, offshore or in any other instrument.

It is projected that with a mandatory pension scheme for all, there will have a significant impact on poverty reduction, deepening of the capital and financial markets and increasing the level of savings.

RBA’s shocking admission on NSSF

Retirement Benefits Authority CEO Edward Odundo. Photo/FILE

Retirement Benefits Authority CEO Edward Odundo. Photo/FILE 

"NSSF problems are historical and that is why its needs a thorough audit.

By Elizabeth Mwai and John Njiraini

Even before the dust settles on a management crisis that rocked the National Social Security Fund (NSSF) barely two months ago, the extent of rot at the pensions custodian is again the focus of attention.

Having acquired the reputation of not learning from its past mistakes, the fund is yet again on the verge of losing billions of shillings after investing workers money through a troubled stockbroker.

Last week, it emerged the NSSF Finance and Investment Committee had for the umpteenth time goofed and invested Sh1.4 billion through Discount Securities that was in financial distress.
The committee, which until two months ago was headed by current acting managing trustee James Akoya, had authorised Discount Securities to trade NSSF shares but failed to secure the certificates thus exposing the fund to a Sh2 billion risk.

But more worrying was the revelation that over the past three years, NSSF’s Sh82 billion portfolio might have been eroded further through dubious claims that it bought shares at the Nairobi Stock Exchange (NSE) only for it to be later established there were no transactions.

While Labour Minister John Munyes moved with haste and dissolved the NSSF board of trustees and ordered a forensic audit on the fund’s true status, the man in charge of the pension industry believes the NSSF is a dead horse unless it is put under strict surveillance.

In an exclusive interview with FJ, the Retirement Benefit Authority (RBA) Chief Executive Edward Odundo says NSSF will continue to invest workers money in questionable deals unless it is subjected to the RBA Act like other pension schemes.
"NSSF problems are historical and that is why its needs a thorough audit and also ensure the fund is regulated like other schemes," he says. 

Attempts to force NSSF adhere to RBA investment guidelines four years ago through the courts failed after it obtained an extension on the premise that it operates under the NSSF Act.

Though the RBA and other stakeholders have for long been pushing for NSSF to be subjected to RBA regulations, the fund has stubbornly refused. This in effect has perpetrated the culture of outrageous investment decisions that have led to the loss of billions of shillings.

A case in point is the disposal of a plot located along Nairobi’s Kenyatta Avenue next to the Laico Regency Hotel.
Title deed

Despite the NSSF selling the plot at a cost of Sh1.3 billion to Delta Resources, the fund released the title deed after being paid only 10 per cent (Sh130 million) of the purchase price.

However, ousted former Managing Trustee Rachel Lumbasyo argued the balance of Sh1.2 billion was being held in an escrow account at the CFC Stanbic Bank for safekeeping in the joint names of the fund and the purchase’s advocates.

In 2002, NSSF also lost Sh256 million in collapsed EuroBank in yet another suspect dalliance with a stockbroker, Shah Munge and Partners that has since gone under. According to Odundo, NSSF’s exploits and gambles in risky and shady ventures are borne from the fact that its investment committee has the freedom to deal directly with banks, something that should not be the case.

NSSF also does not employ the services of professional fund managers to advise its investment team, which is in contempt of RBA investment guidelines.

Odundo explains there should be a clear demarcation of duties with the custodian or managers tasked with the responsibility of handling transactions with the bank.
More importantly, money kept in trust should not be used to finance the fund’s activities, as is the situation currently.

The RBA boss says systematic changes aimed at transforming NSSF’s legal framework must be undertaken as a matter of urgency. "Under its current status, NSSF lacks the technical capacity to manage workers money appropriately," says Odundo. Though the need to put NSSF under RBA regulations is paramount considering the current law governing the institution, an Act of Parliament enacted in 1965, is outdated and cannot address the current demands and challenges, the proposed route does not offer any ra

The National Social Security Pensions Trust Bill , which seeks to convert the NSSF from a provident scheme to a pension scheme and is awaiting to be tabled in Parliament for the sixth time, exempts the new entity from RBA rules.
Section 62 of the Bill states that except as may expressly be provided to the contrary, the provisions of the RBA Act shall not apply to the trust.

Worse still, the new law empowers the board of trustees to formulate policies and guidelines for the investment of funds of the trust, meaning RBA investment guidelines would continue to be an anathema.
ys of hope. 

Pension firms should invest in goats

NSSF building in Nairobi.
NSSF building in Nairobi. Photo/FILE  Nation Media Group

Ted Malanda
When I quit my previous job, my employer refused to part with his contribution of Sh390,000 towards my pension saying I had to wait till I became 55, wrinkled and frail before he paid me.

One and a half years ago, I asked him to transfer that withheld pension to my new boss. "I want to consolidate my savings in one basket," I lied. Truth is I was moving my money because I don’t trust government pension schemes.

To my great surprise, they sent a cheque for Sh430,000 last week. In other words, my pension had not been ‘eaten’ as I had feared. It has actually been laying eggs and in three years, it has made me Sh40,000 richer.

Yet when I resigned in 2005, a quarter an acre of land in the neighbourhood of Ongata Rongai was going for half a million bob, payable in beer rounds and small cash instalments. Today, the same piece goes for Sh1.2 million, hard cash.

Thus, anyone who bought land is getting rich without lifting a finger while I and millions of other idiots whose savings are locked up in fancy pension schemes are only paying investment bankers and getting poorer.

In fact, when we retire, that pension won’t even be worth a skinny he-goat.

When my father retired in 1977, I was in Standard Two. His pension was 700 bob a month. Last year, it had appreciated to Sh2,000 — the equivalent of an average beer bill for the evening.

To be honest, I still get shocked that the old man, aided by his cute wife who happened to be my mother, squeezed us through school. Don’t forget that unlike these days when we have one spoilt brat, my parents practically raised a football team. Of course, they didn’t achieve this feat on the old man’s Sh700-a-month pension.

Being a man of foresight, he had invested in two zebu heifers in 1959. The magic about zebus, what colonial farmers derisively called shenzi (stupid) cattle, is that they can literally survive through hell.

Unlike pampered hybrid cattle, zebus don’t need veterinary doctors, artificial insemination, mineral water and luxurious foods like Napier grass and biscuits. They are tough. They practically live on sisal and boiled rags.

By the time the old man was fired in 1977, his two heifers had multiplied to 85, including Jomo, a champion bull that sired calves left, right and centre and held the village bullfight champion award for a record four years.

It is those zebus that took my siblings and I through school. Every beginning of term, he would sell a cow or two and shoe us — three pupils at any given time — off to school, while Jomo did his thing. Now contrast that with yours truly, my father’s allegedly "educated and widely travelled" son.
leaky affairs

I own neither land nor livestock. My puny savings are instead locked up in fancy unit trusts, risky insurance schemes, questionable stocks, leaky pension schemes and a second-hand car that guzzles fuel like a witch and depreciates in value each day.

While my father wakes every morning to his mooing assets and the comforting aroma of fresh cow dung, I could wake up to news that some crooked investment broker has tinkered with my stocks and rendered me destitute.

My father knew. Jomo could always sire another calf. But a task force won’t bring back money that a government pension fund took from me by force and gleefully flushed down the urinal.

Government rolls out plans to make pension schemes attractive

National Social Security Fund chairman Adan Mohamed (left) chats with Finance minister Robinson Githae during the inaugural NSSF annual general meeting. Photo/DIANA NGILA
National Social Security Fund chairman Adan Mohamed (left) chats with Finance minister Robinson Githae during the inaugural NSSF annual general meeting. Photo/DIANA NGILA  NATION MEDIA GROUP


The Government is fast-tracking reforms in the pensions industry to raise returns for members and make retirement schemes more attractive.

Finance PS Joseph Kinyua said this year’s Finance Bill seeks to amend the Retirement Benefits Act to allow members of pension schemes to use their benefits as collateral for mortgages. Kinyua said as a source of long-term funds, the pensions industry was one of the anchors that could stabilise the economy.

The PS said this in a speech the Economic Secretary Geoffrey Mwau read on his behalf at the sixth Retirement Benefits Authority open day held at the Aga Khan Jubilee Hall in Mombasa at the weekend.

"The Government will therefore continue to put in place policy measures to further strengthen this important industry," Kinyua said.

Meanwhile, Nairobi Metropolitan Assistant Minister Elizabeth Ongoro wants the Constitution changed to enable civic leaders be entitled to pension. Ms Ongoro said she would push for the review of the law to allow councillors who serve for two consecutive terms benefit from a pension scheme when they retire, or are voted out. "Councillors deserve a pension scheme. I will push for change of law to make them eligible to such benefits," she said.

Addressing mourners during the burial of Kariobangi Ward councillor Japheth Bonyo at Wagusu village, Bondo District, at the weekend, Ongoro said civic leaders’ entitlement to pension would boost their performance.

Pension scheme, property developers’ conference

PHOTO | FILE A consultant has faulted the proposed changes to the country’s pension scheme.
PHOTO | FILE A consultant has faulted the proposed changes to the country’s pension scheme.  NATION MEDIA GROUP

By David Odongo
Octagon Pension Services and Ark Property Consultants have organised a one-day conference that will see retirement pension associations and property developers meet to network, share, and discuss investment in real estate.

The conference, to be held on October 12 at Serena Nairobi, has received attendance confirmation of more than 100 pension schemes associations and members drawn from Kenya Property Developers Association.

“Pension schemes have the money, but we have developers who have the ideas and the skills. The idea is to bring them together to invest in real estate,” says Fred Waswa, Octagon Pension Services Managing Director.

He reveals that pensions schemes in Kenya have a cumulative asset base of Sh500 billion, yet less than ten per cent of the amount is invested in real estate.

The pension industry regulator, the Retirement Benefits Authority, allows pension funds to invest up to 30 per cent of their assets in real estate, a move that helps diversify investments.

“All pension funds have about 30 per cent, and this works out to about Sh150 billion. This money, if injected into real estate, can drastically reduce the severe housing shortage experienced in Kenya, especially in urban areas,” said Waswa.

Of late, pension schemes have been attracted by high and consistent returns in the property market, and few of the cash rich schemes have set up projects in real estate.

Kenya Commercial Bank’s pension fund constructed a Sh2.1 billion building dubbed KCB Plaza in Upper Hill, Nairobi, joining other big pension funds like Kenya Power and Lighting and Kenya Ports Authority that have lately set up big housing projects in Nairobi.

High returns
Waswa says that high and consistent returns are the main attraction for pension funds. “It is time for all major pension funds to consider investing in the property market because the returns are high and assured,” said Reginald Okumu, the managing director of Ark Consultants.

Analysts say Kenya’s high population — which grows by one million people per year — and the inadequate supply of housing, is set to hold the rally in property prices in the medium term, helping to boost returns for investors.

Pension funds cash in from bullish Nairobi bourse

The civil servants’ housing scheme in the Kilimani area of Nairobi. The lower classes of the market do not have such developments targeted at them. Photo/FILE
The civil servants’ housing scheme in the Kilimani area of Nairobi. The lower classes of the market do not have such developments targeted at them. Photo/FILE  NATION MEDIA GROUP

By Jackson Okoth
In the last one year, the Nairobi Securities Exchange (NSE) has remained the most attractive option for pension funds managers followed by fixed income securities, property and offshore investments.
Pension funds earned an average of 25.3 per cent over the past 12 months to the end of September, mostly driven by the upsurge in the equities market.

An analysis by Alexander Forbes Financial Services (EA) Limited, an actuarial firm, indicates that over the one year period to September 30, 2012, investments in equities by pension schemes achieved an average return of 38 per cent, ahead of those on fixed income at 21.9 per cent while offshore investments had an average rate of return of 0.6 per cent.

This is a major turnaround from last year’s average return of -11.4 per cent when most share prices at the NSE were on a downward trend. “The equity market is attractive primarily for its return in excess of inflation potential. Investors in an equity market can obtain both capital gains and dividends, with the former being the primary target,” said Shera Noorbhai, an officer at Alexander Forbes Actuarial and Consulting.

She adds that pension fund assets represent a member’s lifelong saving that is supposed to be used in retirement. There is therefore a desire to ensure that the benefit at retirement has grown – affords a reasonable pension – and provides a benefit that can keep pace with inflation – hence a return in excess of inflation.

Investments offshore
“Equities afford this opportunity and hence are an asset class that most pension funds invest in,” said Noorbhai. The only risk pension funds managers’ face when exposed to equities is a fall in the price of the equity relative to its purchase price at valuation or sale date. The other danger is when the dividends are paltry or nil.

Pension Funds can invest in a number of other asset classes including fixed income instruments such as government securities, commercial paper, corporate bonds, property and offshore investments amongst other asset classes. Incidentally, average rate of returns for pensions funds invested offshore performed the lowest at 0.6 per cent. “This is reflective of the returns in the jurisdictions where the various pension funds have invested in. Investments offshore, like in Kenya consist of equity, fixed income, property, amongst other investments in jurisdictions outside East Africa,” said Noorbhai.

She adds that investments offshore are exposed to two key risks. This includes performance of the underlying investment whether this is an equity, fixed income or property investment. Then, there is the currency risk – movement of the Kenya Shilling relative to the currency in which the offshore investment is denominated.

“However, the exposure offshore is quite low for most pension schemes at less than 5per cent and therefore should not shift the overall pension returns too much,” said Noorbhai. The financial services firm surveyed 140 schemes, of which 134 have a total of Sh175 billion under management qualified for inclusion in the survey.

NSSF chief executive defends planned reforms

PHOTO | FILE Acting NSSF managing trustee Tom Odongo.
PHOTO | FILE  NSSF managing trustee Tom Odongo.  NATION MEDIA GROUP
By James Anyanzwa
National Social Security Fund (NSSF) has defend the proposed Transformation Bill from criticism saying the Bill takes into account the existence of private schemes.

The National Social Security Fund Bill, 2012 seeks to position NSSF as a public mandatory social security scheme covering all employees in the formal and a voluntary scheme for the self-employed in the informal sector who wish to contribute.

In a statement yesterday, Acting Managing Trustee Tom Odongo said the Bill had been drawn to address the national social security plight and is not aimed at antagonising existing private schemes.
Private retirement benefit schemes, he said, have fears that the proposed changes to the NSSF functions will hurt other players in the industry.

The Association of Retirement Benefits Schemes (ARBS) had threatened to oppose the proposals in the Bill, notably  raising of  contributions and the planned transformation of the public pension fund into a pension scheme, saying the move threatens their business.

But in a rejoinder, Odongo said failure to provide an expanded social security product would necessarily discriminate various sectors of the economy that are currently neither covered by NSSF nor by the private schemes.

Odongo said social security is important for the well being of workers, their families and the entire economy.
 “Social security is an indispensable part of the Government’s social policy and an important tool to alleviate poverty,” he said, adding that the Bill, which seeks to expand social security coverage would benefit members from the time they join until they retire.

Opt out model
“Unfortunately, the occupational schemes currently cover about 350,000 people only excluding public service schemes, a situation that is regrettable,” he said.

He discounted the notion that the Bill will starve other schemes off business, saying an ‘opt out model’ for schemes meeting specific reference tests had been incorporated.

Under the new arrangement, NSSF would be regulated by the Retirement Benefits Authority — which would ensure issues of governance, prudent investment and ‘opt out’ options are addressed. “The pie is too big for all of us and we us NSSF commit to fairness in recruitment of members,” he said.

The association comprises about 100 of the biggest pension schemes that control more than 70 per cent of the country’s retirement savings pool. The entire sector is estimated at Sh450 billion.

Varsity staff pension scheme make historic deal in property market

PHOTO | FILE Retirement Benefits Authority chief executive Edward Odundo.
PHOTO | FILE Retirement Benefits Authority chief executive Edward Odundo.  NATION MEDIA GROUP

BY Moses Michira  Nairobi, Kenya: 

University of Nairobi’s Staff Pension scheme and consultancy firm PriceWaterHouseCoopers (PwC) has acquired Delta Corner building at Westlands, marking one of the largest individual deals in the property market.

The buyers are estimated to have jointly spent Sh4 billion to acquire the building whose completion has significantly altered the skyline of the Westlands business district in the past year.
Professionals who have been involved in the transaction have revealed that the two institutions invested in the prime property to gain from the attractive rental returns in the fast-growing business district, which has become the focal point of the construction sector.
Sought after
“Quality commercial space in Westlands is still much sought after,” said one source who spoke in confidence, adding “The pension scheme bought purely for the rental income, while PwC would occupy more than half of the space in wing B and lease the rest.”

Office space in Westlands attracts a monthly rent of between Sh100 and Sh120 per square foot, exclusive of service charges – which is the highest in Nairobi.

Commercial property has emerged as a top choice as an asset class for pension schemes, owing to the long-term stability in revenue earnings that office space is able to generate. Minimum tenancy for office space in Kenya is limited to six years, which eliminates erratic occupancy rates, and providing the much needed cushion for commercial property investors.

Joins others
PwC now joins global banks Barclays and Standard Chartered that have shifted their head offices to the Westlands business district. The two banks previously had their head offices within the city centre.

The 20-storey building, which adds over 251,000 square feet of office space to Nairobi commercial real estate segment, was developed by Delta Corporation East Africa Limited (DCEAL), a firm associated with Indian billionaire Mukesh Ambani.

Other deal
 Mr Ambani’s firm also closed another major deal when it sold the Delta Centre in Upper Hill to the World Bank late in 2010 for an estimated Sh2.2 billion. DCEAL has also sold about 85 per cent of Delta Riverside, a boutique office park along Riverside Drive consisting of four blocks of commercial space.

Reliance Corporation, owned by Mr Ambani, owns a 60 per cent stake in DCEAL, while Delta Corporation controls the minority stake.

Jimmy Shah, the managing director of DCEAL, says that his firm was looking at investing in ‘several’ other office blocks, especially in the Upper Hill business district indicating that the Indian-owned firm still has appetite for commercial property in Nairobi. 

Biggest deals
“I think the sale of the Delta Corner could be among the biggest deals in this property market, but we are looking for several other new projects especially in Upper Hill,” says Mr Shah.
“Our bias in future will be in commercial property, but we are satisfied with the performance of our residential project considering the (tough) current situation ” he added.

DCEAL developed a residential estate in Athi River called Delta Plains, which is about 50 per cent sold. The finished projects that have been sold are estimated to have earned the firm over Sh6 billion in net profits, showing the Indian firm to have gained big from the decade-long boom in Kenya’s property market.

Jaydev Mody, the chairman of Delta Corporation — the parent company — alluded to increased investment in Kenya’s real estate market in an address to shareholders.

“The company will receive a substantial amount of dividends from its Kenyan business in the near future,” Mr Mody said.

“The Company’s real estate business in Kenya continues to perform well, driven by strong and favourable economic growth, particularly in Nairobi.”

How employers rip off pensioners

MPs in the newly refurbished Chambers during the official opening at Parliament Buildings August 7, 2012.
MPs in the newly refurbished Chambers during the official opening at Parliament Buildings August 7, 2012. Deputy Speaker Farah Maalim has summoned all MPs to a special meeting to discuss their retirement December 19, 2012  Nation Media Group

By Jevans Nyabiage
Employers could be up on the ropes as retirees troop back to court to challenge how their send-off packages were calculated.

Thousands of former employees suspect they could have been short-changed by their pension schemes probably in collusion with employers.

In the past decade, however, there has been a floodgate of suits as pensioners return to haunt their former employers for more compensation.

“Kenyans are now moving to court to challenge the figures which they believe are wrong,” says Fred Nyayieka, executive director of the Pensions Advisory Centre (K) Ltd.

“In many cases, actuarial firms have been calculating the benefits on behalf of employers and the pension trustees,” he says.

To date, a dozen of companies have been compelled by either courts or the Retirement Benefits Appeals Tribunal to pay millions of shillings to retirees with banks being the worst hit.

A cursory glance at a record of judicial records unearths a number of cases touching on pension matters.
National Bank of Kenya (NBK) was the first to open the Pandora’s box that is a growing pensions ticking time bomb when former employees moved to court to challenge the amount awarded.

Seeking to have the bank pay them more than Sh500 million in pension funds, the former employees said the bank used the wrong procedure to calculate their dues, substantively reducing them.

They also alleged that the bank and the pension trustees changed the pension scheme to a contributory scheme without informing them.

A final court ruling compelled NBK to pay the pensioners up to Sh350 million. Another 629 retired employees of the Stanchart Bank moved to court demanding Sh14.9 billion arising from conversion of their pension fund

The workers argued in suit papers that an actuarial calculation on the lump sum equivalent of their net accrued annual pension found that the bank had reduced the amount as a result of “fraudulent misrepresentation, concealment and non-disclosure of material facts”.

They also claimed they were not informed that the actuarial factors to be used in the calculation of their pension would be provided by the actuary from time to time.

Double speak
At the retirement age of 50 in December 31, 2003, Wilfred Nzioka Mutua, another former banker, was entitled to a lumpsum of Sh2,796,338.

Mutua, a former Barclays Bank employee, would go on to earn Sh63,046 as monthly pension, figures Mutua disputed saying they were understated.

For eight years that followed, he battled with the bank for a review of the amount. He filed complaints with the Retirements Benefits Authority (RBA), which ruled that it had considered all the details before it and that Barclays Bank Staff Pension Fund’s decision was correct.

He appealed to the Retirement Benefits Appeals Tribunal but before the case could be determined, Barclays Bank Staff Pension, on April 2, 2012 in a letter to Mutua and another 88 retirees admitted that it had made a number of ‘errors and miscalculations’ in certain matters. More recently, 67 former Post Bank employees following in the footsteps of those of KCB, Barclays, Stanchart, Stanbic Bank, Kenya Airports Authority, 
Telkom Kenya and a dozen other firms, have sued their former employer over what they claim to be illegal deductions and underpayment of benefits. The case is set for hearing on February 5, at the Industrial Court in Nairobi. 

The retirees claim that Post Bank made deductions from their monthly salaries while in employment without legal justification or foundation. The bank made the said deductions for periods between May 1, 1999 to July 31, 2007 on each successive month while they were in employment.

According to documents, the retirees claim the bank deducted and retained from their monthly salaries, which was disguised as pension fund contributions whereas the prevailing Trust Deed and Rules of the Pension Scheme didn’t authorise the bank to deduct any money from the employees’ salaries.

Through their lawyer, they claim the bank operated a defined Retirement Benefits Pension Scheme, which was non-contributory. The scheme borrowed largely from the Civil Service Pensions Scheme, which was non-contributory. 

And when Stanbic Bank Kenya Ltd and CfC Bank Ltd wanted to merge in June 2008, 15 former employees successfully halted the process.

The ex-employees filed a case seeking Sh532.2 million in pension claims. The amount reached Sh1.16 billion after factoring in interest.

Lumpsum amount
The workers argued the bank used the wrong method to compute their terminal dues, resulting in low perks. The merger was only allowed to proceed after Stanbic Bank deposited Sh532 million to secure the claim.

Some 201 former employees of KCB sued the bank — accusing the bank of reducing their lumpsum amount. The bank was ordered to pay the retirees hundreds of millions of shillings.

And last year, the Retirement Benefits Tribunal reopened a case in which Co-op Bank’s former employees are demanding over Sh2 billion in underpaid retirement benefits.

Under the Co-operative Bank Pensioners Association, the former employees including retirees and laid-off staff said the bank paid them Sh500 million instead of the expected Sh2 billion by not following the scheme’s rules in calculation of their benefits. 

In May 2011, the Retirement Benefits Authority said it was satisfied that Co-operative Bank had paid all due benefits, forcing the former employees to appeal. 

The Retirement Benefits Appeals Tribunal rescinded the decision and ordered RBA to re-examine the application.

Central Bank of Kenya Pension Fund and the Teleposta Pension Scheme are among schemes that have had to fight with former employees in the corridors of justice.

For long, most employees have innocently believed that whatever they are paid is correct.
However, on scrutiny, says Mr Titus Koceyo, a city-based lawyer, the figures do not add up.

“Employers and the trustees prepare the calculations on their own without involving employees — often awarding pensioners far much less than employees are entitled to,” says Mr Koceyo, now handling hundreds of cases of former employees seeking their ‘slashed’ lumpsum amounts.

As a result of this omission, several retirees have had to turn to courts and the tribunal for justice.

This has raised questions on the credibility of parties involved, including the actuaries of the schemes. 
The retirement benefits schemes regulator, however, says there is cause for alarm since the cases are partly born out of its awareness campaigns.

“A majority of the people filing these claims are those who were retrenched in the late 1990s under the World Bank Structural Adjustment Programme,” the source at Retirement Benefits Authority told Business Beat in an email response.

“Pensions were calculated and paid as per the rules that prevailed during that period when there was no pension regulation,” the source said.

“As a result of growing awareness, however, retirees have started interrogating the amount of pension paid.”
Nyayieka says there is a possibility that a number of fundamental issues including, for instance, future pension rights, were grossly overlooked. 

The situation is made more complicated with outdated pension regulations, a shortage of qualified actuaries and the use of inaccurate data in the actuarial processes.

“Some actuaries intentionally deviate from their own assumptions at time of valuation and time of calculation of benefits or conversion to protect the interest of sponsoring organisations,” Nyayieka says.

“Some of them don’t want to lose business and hence they have to do the firm’s bidding.”
Most banks operated non-contributory defined pension schemes until recently when restructuring led them to convert to defined contribution schemes.

Savings by low income earners hits Sh40m through pension scheme

Finance minister Njeru Githae. Photo/FILE
Finance minister Njeru Githae. Photo/FILE  NATION MEDIA GROUP

By Nicholas Waitathu
Efforts to woo low-income earners to save for retirement have registered tremendous growth in terms of in earnings and membership since inception. 

The Retirement Benefits Authority (RBA) in June 2011 started Mbao pension plan targeting jua kali sector workers and others with erratic or low income.

RBA Chief Executive Edward Odundo said savings under the initiative have increased to Sh40.5 million as of the end of last year compared to Sh19.5 million returned in 2011.

Membership, he added, expanded to 39,900 last year compared to 32,800 members registered in 2011. “Currently, we collect a minimum of Sh4 million monthly under Mbao Pension Plan,” said Odundo.

Bright future
Quoting a report released by Co-optrust Investment Services, the retirement scheme’s Fund manager, Odundo said the future looks bright for the informal workers as they will enjoy and manage their retirement life.

Major retirement benefit schemes   as at end of 2011 had assets to the tune of over Sh430 billion with National Social Security Fund (NSSF) leading with about Sh100 billion worth of assets. The progress by the jua kali sector workers signals a cut-throat competition to the traditional retirement providers such as NSSF and blue chip insurance companies.

  Various insurance companies have been serving the corporate market and neglecting the low-end market citing high risks in terms of payment by the clients.

NSSF a few years ago reviewed its business strategies whereby it introduced a new window targeting informal sector workers, such as, hawkers, farmers, matatu workers, and causal employees in most of organisations.

 CIC Insurance Company Chief Executive Officer Nelson Kuria says the change of game by big players in the insurance to expand their business to tap from low-end market is attributable to saturation the corporate market is facing currently.

“The corporate market is no longer growing like in the past thus promoting insurance companies to develop products customised for the informal sector workers – mainly the jua kali. The low-end market has high potential yet to be optimally tapped,” said Kuria on phone. CIC in 2009 initiated Jipange Pension Plan, which as at the end of last year had attracted more the Sh120 million with 3,000 members.

Daily saving of Sh20
Each a member pays a minimum of Sh500 every month translating to less than Sh20 daily.  Odundo said the growth of Mbao Pension Plan; especially its membership was a big step in the right direction.

This, he observed shows Kenyans are increasingly appreciating the need to save for their retirement. The Co-optrust report notes that during the last quarter of last year members saved a total of Sh9.1 million where members pay daily contribution of Sh20 remitted via Safaricom’s mobile transfer service M-Pesa or Airtel money service.
The report attributed the good performance of Mbao Pension Plan to promotion campaigns by RBA and regular SMSs Safaricom sends out to the pension plan’s members reminding them to make their contributions.

Why people are poor

   As a Vision 2030 project, Konza Tech City is considered a strategic opportunity for Kenya to spur the growth of economic activities that fuel higher value employment generation and growth. The city provides a great opportunity to leverage Kenya into the knowledge economy.  As a Vision 2030 project, Konza Tech City is considered a strategic opportunity for Kenya to spur the growth of economic activities that fuel higher value employment generation and growth. The city provides a great opportunity to leverage Kenya into the knowledge economy.

By Morrison A. Muleri FCCA, PhD*
Poverty could be mankind’s biggest modern-day problem. It casts an ugly shadow across races, nations, ages and religions. It begets evils that mutate and deprive us of dignity. I have worked on development in Africa, Asia, Europe and America and I am surprised how complex we believe it is. Yet, to tackle it we must understand its origin, its causes and the critical links which will enable us to cripple it. I endeavor to simplify it.

The World Bank defines absolute poverty as living on less than US$ 1.25 per day (say Kshs 3,000/month).
Using a simple equation: Wealth = Income – taxes – leakages – costs of living

Generating income
First, it is clear that the starting point is income and the most common sources of income are employment, business, investment, and welfare, with employment by far the most prominent. The quantity of income dictates if one should barely survive, live a comfortable life or combine a comfortable life with saving.
The most effective way therefore to tackle poverty is to create high paying jobs and to equip people with skills to fill them. Creating jobs without developing local skills pulls in expatriates. Conversely, developing local skills but without the jobs could lead to mass emigration as in Zimbabwe or innovation as in China or social unrest like the Arab Spring.

If a government gives people skills, access to finance and a conducive business climate, they tend to help themselves, others and the government out of poverty. A good environment allows those with resources to invest in equity/ shares, savings and deposit accounts or bonds to derive dividend or interest income. Investments earn income and give others the capital to produce more.

However, some will always be left behind be it due to vulnerabilities arising from disability, discrimination, socio-cultural or even economic causes. Responsible societies have an obligation to help those left behind by providing welfare income.

People’s ability to earn an income, therefore, depends much on the efforts of the government. Governments greatly influence the investment climate, access to finance, quality of skills, employment, migration, disposable incomes, and welfare programs. Also important is behavior of individuals themselves and the international community.

Second, tax represents mandatory direct deductions like PAYE or withholding tax, governments imposes on incomes. Higher taxes may enrich governments and impoverish citizens (socialism) while lower and more progressive taxes may lift people out of poverty.

Smart governments win by widening the tax base e.g. by growing the economy, and enforcing compliance to share the burden thinly across a bigger universe. They also ensure that taxes collected are shielded from leakage and instead directed into very carefully targeted causes of public good. While governments directly control taxes, citizens have a moral obligation to play their civic duty.
Leakage presents a unique cost mainly to developing societies mired in insecurity, poor infrastructure and corruption. They are additional costs people incur say to establish and run businesses, secure and maintain jobs, protect themselves and obtain services. It is what corruption and wastage cost us.

However, individual preferences are vital. Some people are extravagant, others measured and yet others frugal. Personal preferences affect what you save and the productivity of your savings. We can squander, protect or invest savings. BRICS nations partly use frugality to overcome poverty, China has invested its savings into a fortune and Eastern Europe is squandering its wealth back into poverty. It is therefore clear that the best way to eradicate poverty is to develop jobs, skills and the investment climate so as to enhance incomes and at the same time minimize taxes, leakages and costs of living, while providing welfare to the most vulnerable. All these greatly depend on the actions of the government, and right there are the priority entry points for any responsible government to tackle poverty. 

High leakages lead to higher costs and prices which escalate poverty. For SMEs, bribe have to be paid for permits, goods are stolen, staff are connected but less productive, power and security need back up, transport costs are higher etc. For citizens, bribes have to be paid to procure goods and service. In well managed societies such costs are minimal.

Leakages cannot be avoided and thus rank just below taxes in necessity. People would rather sacrifice savings or quality of life to pay for them. They eat into what would have been saved and re-invested. Governments greatly control leakages although the moral compass of society plays a role too

Costs of living
Fourth, costs of living are what we all easily identify like the cost of food, shelter, security, utilities, health services, and education.

The amount we pay for these is a function of many factors. For a start, public goods the government provides matters. If it provides good infrastructure, security and basic services, what the individuals have to
pay on top of taxes reduces. Simply put, eliminate corruption, give my mother good healthcare and my nieces good education and I will save and re-invest more.

It costs more to provide more and what smart governments do is to tax progressively and supplement direct taxes with investment income and indirect taxes like VAT, sales tax and tolls. These ‘pay-as-you-consume” taxes are voluntary in a way but their benefits spread to more people. Governments also use grants and cheaper borrowed funds from say the Bretton Woods Institutions and other development banks, friendly nations and organizations and partners up with the private sector to lower costs of basic services and develop infrastructure. The more government does here translate into savings by the citizens who have to pay the residual costs.
The hand of government in these costs is far reaching. If goods and services are imported, it determines the excise and custom duty, other levies and leakages, all of which are passed to consumers. For locally produced goods the incentives governments provide and the taxes they levy determine their final prices.

Governments can regulate prices or subsidize some goods and services. If costs of living are high, more people sink into poverty and if they are low, more people are lifted out of poverty. The government can raise a tide that lifts all boats (citizens).

Finally, savings or wealth is what remains from income after paying for all these. It is the future cushion against poverty. Ballpark figures show an average American can save 25% of income, a Briton 15% and a Kenyan 5%.

*The author is a chartered accountant and holds a PhD in development effectiveness besides other qualifications. He works for a leading development organization in Washington DC. The views expressed here are entirely his own. He can be reached at

NSSF targets high impact strategic investments

   As a Vision 2030 project, Konza Tech City is considered a strategic opportunity for Kenya to spur the growth of economic activities that fuel higher value employment generation and growth. The city provides a great opportunity to leverage Kenya into the knowledge economy.
As a Vision 2030 project, Konza Tech City is considered a strategic opportunity for Kenya to spur the growth of economic activities that fuel higher value employment generation and growth. The city provides a great opportunity to leverage Kenya into the knowledge economy.

By John Oyuke
National Social Security Fund ( NSSF) plans to engage in more strategic investments to guarantee high returns for its corporate transformation.

NSSF Board of Trustees Chairman, Adan Mohamed, says the fund is gearing up for to be a key player in the local Public Private Partnerships (PPPs) project financing scene, in line with its membership growth, which is projected to hit the 4.2 million-mark in the next two years.

Speaking during a ceremony to celebrate NSSF’s recent ISO 9001:2008 Quality Management System certification by the Kenya Bureau of Standards (Kebs), Mohamed explained that the fund will focus on high impact investments that guarantee a high return in the energy, and infrastructural development. This, he said, is part of the fund’s policy to diversify its investments beyond the equities and property development portfolio.

Ahead of the fund’s ISO certification, Mohamed confirmed that NSSF had activated a new Sh300 million SAP Enterprise Resource Planning (ERP) solution to facilitate efficient, real time service delivery across its core business functions.

 “At NSSF, we have made a deliberate policy decision to invest in infrastructural projects with a high impact and guarantee high value returns on our investments as well as boosting social development,” Mohamed said.
Within the broad energy development sector, Mohamed said NSSF would seek to invest in energy production and transmission.

NSSF, he said had expressed an interest to fund high impact projects such as the construction of a tunnel or suspended bridge along the Likoni Channel or Kenya’s second superhighway.

Mohamed singled out the fund’s proposed Hazina Village Development within Mavoko Municipality as one of NSSF’s proposed high impact projects to be developed at the fund’s 1,000 acre property in Mavoko, Machakos County.

The project valued at $1billion will feature a City within a City model incorporating more than 30,000 housing units and allied amenities including a light rail network.

“The necessary project designs and evaluations have been undertaken and we expect to conduct the ground breaking ceremony for the Mavoko project before the end of the year,” Mohamed explained.

 “ NSSF is firmly positioned on a transformation path and the ISO certification confirms our corporate adherence to global quality management standards.’’

Uganda’s NSSF to invest in Kenyan stocks, private equity

File | NATION Investors in the Nairobi bourse. Confidence that the economy will outperform 2011 and better the pace in 2013 also contributed to the good performance.File  NATION Investors in the Nairobi bourse. Confidence that the economy will outperform 2011 and better the pace in 2013 also contributed to the good performance

Kampala: Uganda's sole state pension fund said on Wednesday it would start investing in Kenyan debt and equities and establish a private equity fund to expand its Ugandan investments into unlisted companies.
The National Social Security Fund (NSSF) is one of the biggest investors in the country with assets of 2.74 trillion shillings ($1.04 billion) last year, and has about 130 billion shillings to invest every month from contributions.

Kenya offers a more varied array of established companies to invest in compared to Uganda, said the NSSF's managing director, Richard Byarugaba.

The NSSF already has large holdings of stocks on the Uganda Securities Exchange.
"The main problem NSSF faces is that Uganda doesn't have a deep equity market so our investment options are limited, yet we have a lot of cash - about 130 billion shillings in fresh cash to invest every month," he told reporters.

"So we're working on an idea of setting up a private equity fund that will be looking at investing in small and medium enterprises and we're also planning to increase our investments on the Nairobi Stock Exchange."

The pension fund expanded its assets by 29 percent last year after improving contributions from its members.
All Ugandan employers with more than five workers are required to remit 15 percent of each employee's monthly salary to the Fund as social security savings to be redeemed upon retirement, set at 55 years.

Some struggling employers, however, often fail to remit the worker contributions and the fund has traditionally struggled to enforce compliance.

Byarugaba said he had changed the pension fund's investment model, putting more money into high yielding, longer-term government paper instead of short-term. The NSSF cut back its deposits in commercial banks, he said.

"Also, we're planning to start buying Kenyan treasury paper," he said.

Last year, President Yoweri Museveni revealed his government was looking to borrow about $400 million to finance construction of roads and Byarugaba said the loan was likely to be budgeted for in the financial year to June 2014.

NSSF reveals plan to double membership

   As a Vision 2030 project, Konza Tech City is considered a strategic opportunity for Kenya to spur the growth of economic activities that fuel higher value employment generation and growth. The city provides a great opportunity to leverage Kenya into the knowledge economy.   
As a Vision 2030 project, Konza Tech City is considered a strategic opportunity for Kenya to spur the growth of economic activities that fuel higher value employment generation and growth. The city provides a great opportunity to leverage Kenya into the knowledge economy

By Standard Reporter

Nairobi, KENYA: The National Social Security Fund ( NSSF), has embarked on a promotion to raise awareness on its services and mandate as it seeks to double its membership roll. The campaign will educate existing and potential members on the funds products and membership options through the recently launched web based online registration platform geared at driving the funds membership to 2.8 million up from the current 1.4 million levels this financial year.

NSSF Managing Trustee Tom Odongo said the initiative is part of the ongoing corporate transformation programmes aimed at clearing misconceptions on the funds statutory mandate.
He pointed out that the fund had undertaken a series of strategic organisational development programmes to enable it efficiently handle a higher membership complement.

Automating functions
Odongo also said the firm is in the process of automating its administrative functions to be in line with global standards, as the firm seeks to transform itself into a customer-focused organisation,
NSSF has already unveiled a web based online member registration portal to provide a self-service recruitment option for both the informal and formal sector members. It has also activated an M-Pesa function that allows for convenient account top ups for existing members through their mobile phones.

“As an organisation, NSSF has covered very good ground in our corporate efforts to transform this organisation to a customer focused institution, providing value to its members,” Odongo explained.
The corporate awareness campaign will also facilitate efforts to convert the current NSSF from a provident fund into a public mandatory social security scheme. The conversion, Odongo pointed out will be undertaken through the NSSF Bill 2012; set for parliamentary presentation and debate this year.

Increase coverage
If successfully passed through the pending parliamentary process, the Bill will facilitate the statutory repealing and replacement of the existing National Social Security Fund Act (Cap. 258 of the Laws of Kenya). The proposed NSSF Bill will provide enhanced social security products to existing members while increasing social security coverage through comprehensive benefits to all workers in line with the new Constitution and Vision 2030 ideals.