Pension schemes in East Africa on growth trajectory

Fred Waswa, CEO of Octagon Africa Financial Services Ltd. PHOTO | COURTESY 

In Summary

• Current position: Fred Waswa is founder and CEO of Octagon Africa Financial Services Ltd.
• Previous positions: Pension administrator, Minet ICDC. He also served as area pensions principal officer at Standard Chartered Bank in East Africa. He is co-founder and executive director of Kingsland Court Trusts and Benefits Services Ltd.
• Education: Bsc in Statistics and Computer Science at University of Nairobi
  Postgraduate diploma, Corporate governance, KCA University
  Higher diploma, Human Resource Management, Institute of HR Management.
• Professional: Certified trustee, trainer and examiner by the Retirement Benefits Authority.

By JAMES KAHONGEH
More by this Author

CEO of Octagon Africa Financial Services Ltd Fred Waswa speaks on the evolution of pension industry in the region.

-------------------------

In what significant ways has the industry evolved over the past 27 years?

Our pension is about 30-year-old. Other than the revenue authorities that made sure that pensioners paid their taxes, there was no regulator of the pension industry in 1993.

Kenya led the way in establishing proper regulations for retirement savings through the Retirement Benefits Authority (RBA) in 2001. Rwanda and Uganda followed suit.

The challenge has been Tanzania, which still lacks sound regulations. At the time, pension schemes were managed like departments within an organisation.

Few people were saving for retirement then. Today, we have fully independent government pension and corporate pension schemes that are fairly well co-ordinated.

Workers can also opt for personal retirement saving plans. More people know about pension now and are saving for their retirement. With proper structures now in place, workers’ retirement savings are safer. 

Where is East Africa’s pension industry at the moment?

In terms of savings, Kenyan workers had saved Ksh100 billion ($100 million) for retirement by 2000. Twenty years later, we have about Ksh1.2 trillion ($12 billion) savings for pension.

Today, more people than ever before are retiring with a monthly income, unlike years back when retirees would go home with virtually nothing. There are now firmer governance structures and compliance with the law is much better.

The new headache in the past 10 years has now been to get more workers to save for their retirement. Today, most corporates have operational pension schemes in place.

Are East Africans saving enough to sustain themselves in retirement?

The only people saving nearly enough are people in corporate and personal pension plans.

The replacement ratio in Kenya is at 22 per cent such that if you are earning a monthly salary of kSh100,000, ($1,000) you Will be receiving Ksh22,000 ($220) per month in retirement. This money can’t sustain you for any meaningful time.

How does the region’s pension industry compare with elsewhere in the world and what lessons can we draw from them?

Giving tax advantages encourages more people to save for pension and creates capital for development. Singapore, for example, has majorly developed from pension funds by deducting 25 per cent (each half by the employee and the employer) of workers’ salary to go to retirement benefits.

Our industry is just about 20 years old while in the developed world, some companies are more than 100 years old. One of the lessons we could draw from the UK, for example, is to restructure our pension schemes around unions, occupations and associations.

In the US, Singapore and South Africa, pension funds are meant only for retirement. Here, workers withdraw their retirement benefits every time they move from one employer to the other.

Claims of corruption are rife in the bloc where pensioners’ money is embezzled. Is it safe to save with the government?

On the one hand, this stems mostly from mismanagement of funds by the relevant government agencies.

Uganda had a serious case of fraud involving the civil servants pension fund three years ago. There’s also the challenge of inadequacy of benefits paid out to the pensioners and delays in paying them.

It’s mysterious why NSSF, for example, has had acting CEOs for the past four years.

Proper governance structures that inspire confidence in the public have to be established within NSSF.

On the other hand, management of occupational schemes has been commendable, although the returns are still not good enough owing to economic slowdown.

Less than 10 million people in East Africa were in pension plans by last year. How would you explain the low pension coverage in EA?

Our biggest setback is the labour force in the informal sector, under which 80 per cent of all workers fall.

While Kenya has about 15 million people working, only slightly over three million are saving for retirement. The question is, where are 12 million workers? These are in the micro and medium enterprises.

How can the region harmonise its social policies?

EAC has a framework that addresses social security but which hasn’t been efficient.

Countries in the bloc must synchronise their tax regimes to allow people working across the region to enjoy the same tax advantages. Regulations for asset classes too have to be consistent.

Today, pension schemes in Uganda can’t buy property in Kenya and vice versa.

If regulations stipulate, say, 30 per cent investment in property, the property should be across East Africa.

If that were the case, Kenya wouldn’t be struggling with the current glut in office space for example. The solution is to set up platforms and mechanisms to rope them into the pension bracket.