REMARKS BY NZOMO MUTUKU, MBS, CHIEF EXECUTIVE OFFICER, RETIREMENT BENEFITS AUTHORITY DURING THE LAUNCH OF OCTAGON MICRO-PENSION SOLUTION AT INTERCONTINENTAL HOTEL ON 27^TH AUGUST 2019

Mr. Fred Waswa, Group Chief Executive Officer, Octagon Africa Financial Services Limited, Mr. Godwin Simba, Managing Director, Octagon Pension Services Limited, Distinguished Guests, Ladies, and gentlemen.

It is a great honor to join you today as we lunch a micro-pension solution aimed at boosting uptake of pension coverage in the informal sector.

The launch of the product is extremely timely as it comes only two months into the implementation of the Authority’s new 2019/2024 strategic plan which targets to promote the development of the retirement benefits industry with a key focus to increase pension coverage in the Informal Sector.

Ladies & Gentlemen, as you all know the Authority is mandated to regulate and supervise the establishment and management of retirement benefits schemes, protect the interest of members & sponsors, promote development of the retirement benefits sector, advise the cabinet secretary National Treasury on national policy with regard to retirement benefits schemes and to implement all government policies relating to the sector.

As an industry, we have made tremendous strides towards expanding coverage but there are still millions of Kenyans outside the pension bracket. The current pension coverage ratio (i.e. the proportion of labor force participating in a pension arrangement) in Kenya currently stands at 20%.

This ratio is quite high in comparison to other Sub-Saharan Africa counties but is still insignificant compared with global average coverage ratio of 51% for Middle Income Countries, which Kenya is classified (average pension coverage ratio as at 2014 ( World Bank): Low Income countries – 17%, Middle Income Countries  – 51%, High Income Countries  – 90%).

One of the main contributing factors for the low pension coverage in Kenya is that a large component of the human capital is in the yet to be reached informal sector (that stood at 83.6% of total employment in 2018 – Economic Survey Report: 2019).  We believe that Octagon’s Micro-pension solution we are launching today will play a key role in reaching out to this critical sector.

As you all know the majority of the pension schemes were formed with the formal sector in mind. However, the Individual Pension Plans (IPPs) have the flexibility to accommodate members of the informal sector. The Authority encourages all individual pension plans to be innovative in order to attract more uncovered Kenyans to start saving for retirement.

Another missing link has been how to sensitize and convince workers in the informal sector to join the pension plans and start saving towards their sunset years. Towards this end, the Authority has undertaken various pension education campaigns geared towards enhancing the scope of the covered population in the country.  To understand the main barriers to pensions saving and the impact of the Authority’s pension education campaigns, an impact assessment study was carried out for the very first time from July to November 2018. The findings of the study were incorporated in the Authority’s 2019/2024 Strategic plan which we are now implementing. Another recent study that we undertook with support from the World Bank focused on the challenges faced by existing schemes targeting the informal sector and how the Government can better support them.

Building on this study the National Treasury has already established a unit to focus on the area of micro pensions and the Authority has seconded a senior officer to the Treasury to drive the agenda.  This demonstrates the Governments strong commitment towards supporting the retirement benefits industry and driving coverage in the informal sector.

As the regulator we have been doing and shall continue doing our part in this agenda in particular through sensitizing potential savers, protecting members’ savings, maintaining stability, facilitating innovation and undertaking research to inform policy formulation. However, the ultimate responsibility of onboarding new members remains with individual pension plans since they are the providers of pension products.

One of the strategies we have employed to reach out to members of the informal sector has been through targeted media campaigns and strategic collaboration with county governments and professional associations. We are currently running a digital media campaign in collaboration with the Nation Media Group.

The digital campaign that started at the end of June 2019 shall run till the end of September 2019. We have also redesigned the Authority’s website to be more user-friendly and enhanced educative content aimed at encouraging more Kenyans to join pension schemes. The new website is live and all IPPs have been enlisted. It is now upon the IPPs to leverage on this to publicize their products to encourage prospective members to come on board.

Last month we held a brainstorming session with representatives from Individual Pension Plans and agreed to work closely to expand pension coverage. Among the key issues that were agreed upon at the meeting include:

• Dates and venues of RBA outreach activities to be shared with IPPs in advance to enable them to participate fully
• RBA to organize meetings with key industry stakeholders including, Sacco leaders, to convince them to bring their members on board.
• New RBA website to have links to all service providers and their contacts for ease in enrolments, direct interactions, and response to queries. Innovative features such as a digital pension calculator to be included on the RBA website to enhance the conversion of prospects.
• IPPs minimum contribution is a put off for low-income earners. The Industry is encouraged to remove contribution barriers and other restrictions to encourage more Kenyans to join individual pension schemes.
• Industry to continue to lobby for more tax incentives for saving for retirement.
• The industry has been urged to embrace innovation; for instance, bundle pension with other product such as medical, benevolent, and credit to make voluntary savings attractive. To think outside the box on ways to onboard the informal sector.
• IPPs were encouraged to ride on Sharia compliance to attract savers who may be excluded on grounds of religious or ethical beliefs.
• The Industry needs to leverage on technology to enable members to get full service through mobile phones, not just sending contributions and receiving benefits but value additions such as getting statements, voting and making requests.

I am pleased to note that the product we are launching today, already incorporates some of these recommendations. We look forward to collaborating with and to support all stakeholders in the industry in continuing to develop products that will meet the needs of the Kenyan citizen.

As the regulator, we shall strive to foster a conducive environment and commit to champion any legislative changes that may be required. In addition, I am pleased to announce that Authority will partner with other financial sector regulators with a view to putting in place a regulatory sandbox regime where new pension innovations can be piloted and tested before full rollout.

The pension industry has experienced growth with the latest statistics revealing an asset base of Kshs. 1.2 Trillion as at 31 December 2018 despite a lot of volatility in the financial markets.  We expect to see strong growth in the industry this year as products such as the Octagon Micro-Pension solution and others come on board and help bring more Kenyans into the industry.

The recent change effected by the Cabinet Secretary, National Treasury, and Planning that amended the Retirement Benefits Umbrella and Occupational Regulations to further extend the preservation of retirement benefits to include 100 percent of employer contribution will also contribute to growth in the industry while ensuring members receive an adequate benefit on retirement.

Once again congratulations to the Octagon group on the launch of this exciting new product and we look forward to working together to increase pension coverage through innovative and targeted solutions.