Why your Money in Retirement Benefits Schemes is Safe

Following reports in a section of the press insinuating that saving for retirement through individual pension plans is more unsafe than in occupational pension schemes, the Retirement Benefits Authority wishes to clarify as follows:

Both Occupational Pension Schemes and Individual Pension Schemes are regulated under the same law under the watch of the Retirement Benefits Authority whose key mandate is to supervise the establishment and management of retirement benefits schemes.

In it’s the legal duty to protect the interests of members and sponsors of schemes, the Authority has implemented a risk-based supervision approach for monitoring the performance of schemes. All schemes are assigned a risk rating with a maximum risk rating of 5 and a minimum rating of 1.

The risk-based Supervision approach requires that enforcement actions are undertaken on Schemes with high risk rating to ensure the overall risk score is reduced.

Further, the Authority has adopted a separation of roles to ensure service providers oversight each other to complement the Authority’s watchdog role. The safety of a pension fund is therefore enhanced by its structure as follows:

The Trustees of a pension scheme, whose key role is to safeguard the interests of fund’s members at all times are legally required to appoint an independent Fund Manager to invest the scheme funds and an independent bank (Custodian) to look after the pension scheme assets such as cash and other investments.

In addition, a Fund Administrator is appointed to maintain accurate records of all contributions made by members and all benefits paid to them. The Fund Manager operates under investment guidelines issued by RBA and developed in line within objectives of a particular scheme to safeguard the interest of members.

This separation of roles ensures good governance, transparency and accountability with regard to decisions made on behalf of members.

In the unlikely event of mismanagement, the Authority has always taken corrective action including:

  • Communication with Scheme Trustees and/or Service Providers requiring compliance and submission of remedial plans
  • Onsite inspections
  • Appointment of interim administrators where necessary
  • Aapplication to Court to commence involuntary winding up proceedings where applicable

The Authority closely monitors operations of schemes and regularly receives quarterly reports from all schemes on status of contributions and investment of scheme assets . This ensures timely intervention if anomalies are detected.

In order to deal with emerging governance issues associated with growth of the pension industry, the Authority has issued Good Governance Guidelines for Pension Schemes and also Treating Customers Fairly Guidelines. These are currently being implemented by both schemes, Trustees, Service Providers and Sponsors.

It also has an ongoing program to sensitize scheme members on their rights and responsibilities as an extra cushion against mismanagement of the pension funds.

A complaints mechanism has been implemented and Scheme Members are entitled to lodge complaints with the Authority if scheme trustees fail to address their concerns.  The Authority has power to sanction and prosecute any trustees or any person who fails to follow the law with regard to management of pension funds.

Further if one is not satisfied with the decision of the Authority on any case, one may lodge an appeal with the Independent Retirement Benefits Appeals Tribunal.

The Authority has also collaborated with other financial sector regulators including Capital Markets Authority, Insurance Regulatory Authority, Central Bank of Kenya and Sacco Societies Regulatory Authority to undertake joint monitoring and intelligence sharing to mitigate any unscrupulous behaviour in the management of pension funds.

Finally, the Kenyan Pension system was recently ranked as Number Two in Africa by global financial services company Allianz reaffirming its international recognition as a safe and stable system.

Members of the public are therefore advised to confidently join individual pension plans and safeguard their income for the sunset years.

Nzomo Mutuku, MBS

Chief Executive Officer,

Retirement Benefits Authority