How pension funds can be managed to benefit contributors

Assets held by pension schemes hit the Sh990 billion mark. FILE PHOTO | NMG
Assets held by pension schemes hit the Sh990 billion mark. FILE PHOTO | NMG 

The only way Kenyans can reap full benefits from the pension industry is if the funds are properly managed.

A pension fund is any plan or scheme which provides retirement income. The schemes mainly get their funds from employers’ contributions on behalf of employees and subsequently from the investments made thereof.

There has been notable growth of pension funds. Data by the Retirement Benefits Authority (RBA) showed that assets held by pension schemes hit the Sh990 billion mark by June this year helped by a wider coverage of workers. Such incredible growth sets ground for fruitful exploitation of pension funds in Kenya.

Overtime, the funds have made a commendable shift from traditional to more modern forms of investment. In the past, pension funds mostly invested in local fixed-income bonds, with regulations being a key driver of asset allocation.

However, managers are now shifting to other investment arenas.

Experts say that properly invested funds can ease debt burdens of any economy by shrewdly investing the funds into infrastructure projects.

Such projects are run by governments. Several African countries have registered commendable success from proper exploitation and investment of pension funds.

For instance, South African pension funds have recorded notable growth, helped by rules that allow them to invest 10 per cent of assets through private equity. Investment experts RisCura argue that “pension funds are ideal for driving inclusive growth and social stability, including through investing in longer-term projects such as infrastructure.”

The Kenyan pension industry can use these lessons to benefit contributors. This will open the door to responsible investment, which will enable pension funds managers to take proper steps and invest.

The managers should establish schemes that are accommodated in the country’s laws. This reduces the amount of money and time pension funds waste on legal suits.
Secondly, favourable and flexible laws and regulations should be put in place to resolve pertinent issues in the pension industry.

Some of the laws that govern the funds are the Retirement Benefits Act no 3 of 1997, and the Retirement Benefits Regulations and Pensions Act Cap 189.
These laws and regulations should strike a balance between flexibility of investment funds and embezzlement by rogue managers. 

Proper revision of laws, with the aim of updating pension fund investment practices, is vital.

Pension capital is good for long term investment, making it suitable for joint venture opportunities between pension funds, companies, asset managers, consultants and investors engaged in long-term ventures.

These groups are looking to partner with pension funds. Long term investments projects include infrastructure, venture capital and low carbon.

We should be alive to the fact that pension funds have become an attractive option for funds for investment.

This is only possible through taking professional fund managers on board.

Isabella Obara is a lawyer with Oseko & Ouma Advocates.