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Pension industry takes a new path with change of law

Sundeep Raichura, Zamara CEO: We remain committed. FILE PHOTO | NMG
Sundeep Raichura, Zamara CEO: We remain committed. FILE PHOTO | NMG 

Kenya’s largest pension funds administrator Alexander Forbes, has just rebranded to Zamara. The change in trade name came in the wake of a change in the company’s ownership that has cut foreign ownership in the firm to 30 per cent.

That shift was itself in line with the recently enacted legislation that caps foreign ownership of pension fund administrators at 40 per cent.

Ochieng Rapuro talked with Sandeep Raichura, the Zamara managing director on the state of the pension industry and what is on the cards for Zamara. 

How big is the pension industry in terms of assets and how is that shared out among the asset managers?

Total pension assets (including the NSSF) are estimated at just under Sh1 trillion. The industry has 19 licensed fund (asset) managers, 11 custodians and 30 administrators.

Zamara (formerly Alexander Forbes) is the largest pension fund administrator in Kenya in terms of both membership and assets under administration. The top six asset managers based on size of pension assets under management as at December 2016 were Sanlam (formerly Pinebridge) (at 17 per cent), GenAfrica (14pc), OMIG (11pc) Stanlib (10pc); ICEA (8pc) and Britam (at 5 per cent). 

In what asset classes are pension assets in Kenya currently invested?

The majority of assets are invested in traditional asset classes, namely equities and fixed income securities. Based on the latest Zamara Consulting Actuaries Survey, the weighted average allocation to fixed income securities and equities for segregated schemes is 64 per cent and 24 per cent respectively.

The overall proportion invested in property is 10.5 per cent, but it is only the larger schemes that invest in property. Average exposure to offshore investments stands at 1.5 per cent.

The proportion invested in alternative asset classes such as private equity is negligible, but there is a growing interest in this asset class. 

Pension industry growth has somewhat slowed down in recent years with annual returns now below the double digit returns of 2014. What are the prospects going forward and what should pension savers expect?

The investment performance in the last two calendar years has been impacted by a depressed equities market. In the year 2016 the NSE 20 share index declined 21.5 per cent while the NASI (Nairobi All Share Index) dipped 8.5 per cent.

The start of this current year has been shaky, but the investment performance has improved in the second and third quarters to date.

Based on the Zamara Consulting Actuaries Survey, the average performance for segregated pension portfolios for the one year ending 30 June 2017 was 13.8 per cent against an inflation rate of 9.2 per cent.

All things being equal, the 2017 performance to date appears to present a positive turnaround in performance.

What are the big pension sector policy and regulatory changes in the recent past and what has been their impact on the industry?

Quite a number. We have, for instance, seen a progressive move towards reducing the period for the vesting of members’ benefits from five years to zero years. This means that members of retirement funds are now entitled to the full portion of their employer’s contributions on exit.

Whereas this is positive for members, disappointingly, preservation of benefits remains low following the dilution of the preservation rules in 2010. 

Second, training for trustees of retirement funds has been made compulsory. This has enhanced the capacity of Boards of Trustees, resulting in better managed schemes.

Most importantly, the industry regulator, the RBA [Retirement Benefits Authority] has adopted a risk-based approach to supervision in line with financial services regulation. There have also been changes aimed at strengthening the independence of Boards of Trustees.   

Among the latest regulatory changes is the law capping foreign ownership in a pension fund administrator to a maximum of 40 per cent. What is this law intended to achieve?

Evidently, this change is intended to increase local participation in the ownership and control of pension administration companies in Kenya.

The change is expected to enhance the level of local accountability for decisions made by pension administrators; not just in Kenya but in other East Africa states as well. Tanzania has just introduced legislation to limit foreign ownership in an insurance broker to 33 per cent.

The company you head, Alexander Forbes, until recently majority 60 per cent owned by South Africa based firm of a similar name, has rebranded to Zamara because of this change in legislation. How is the change in ownership likely to affect the company?

There is no change to the board or our leadership team. We have valued our partnership with Alexander Forbes, but the legislative change has given us a unique opportunity to chart our own destiny. It has presented us with an opportunity to create our own unique identity and build our own authentic brand that staff, customers, partners, investors, and other stakeholders can connect with — a brand for the future.

Of course, this transformation isn’t just about focusing on the new and forgetting the old. We will carry along what people have come to know us for — service orientation, actuarial expertise and unwavering commitment and reliability.

Do we have a new majority owner at Zamara and are you contemplating bringing on board a strategic investor?

The majority shareholding in Alexander Forbes Kenya is now held by James Olubayi, the company’s founding director, who has been here since inception in 1994. At this stage there is no intention to bring in a strategic investor.

How does ZAMARA plan to grow the business in Kenya and region?

In terms of core strategy, we plan to build on our track record in the corporate space and extend our offerings to SMEs and the retail market.

In particular, we are researching the SME and retail markets with a view to offer simple, relevant and cost-effective pensions, medical and insurance solutions to these segments.

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