How employers rip off pensioners

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.

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