Category Archives: retirement

Individual Pension Schemes – Zamara Vuna AGM

Members of the Vuna pension scheme by Zamara met at their annual general meeting (AGM) in Nairobi this week to get updates of the previous year during which the fund grew by 10% to Kshs 2.37 billion. It was a year in which they rebranded from Alexander Forbes Kenya and one in which, the Nairobi Securities Exchange, which had its last good year in 2013 (when it was up 44%), managed to rebound in 2017 to 28% after dipping in the years in-between.

Zamara’s Vuna takes the view that saving for retirement is not a priority among many Kenyans who are juggling many financial requirements every day – so they have designed products for people to save what they can, when they want – people such as the self-employed, small business owners, individuals, overseas workers, and those  who work in organizations that don’t have formal retirement pensions plans. They also accept lump sum contributions and M-Pesa payments.

Vuna has over 5,000 individuals and 180 small companies as members and they give different options for savers according to their risk tolerance, for them to be pooled in the conservative, moderate or aggressive investor portfolios and members can switch their investor profiles once a year. They added an online portal for members to track their contributions and an app that helps members do projections about their retirement savings. This year they are adding a new group life assurance scheme.

They updated members on changes to their schemes, tax rule and answered questions  such as on how to deal with employers who don’t remit deductions and how they decided on making payments to families  of members who have not updated their beneficiary list-  and they cited a study that showed a higher proportion of women do not list their husbands as their beneficiaries, compared to husbands who list their wives. The meeting ended with an advisory caution to members that the only person you’re 100% sure will take care of an “older you” is a “younger you”. 

Safaricom CEO Leave and Impact

Safaricom is not expected to undergo major changes or see much impact following the shock statement released this week about CEO Bob Collymore leaving the company for a few months to undergo medical treatment.

“During this time, Sateesh Kamath, the current Chief Financial Officer for Safaricom who is also Mr. Collymore’s alternate on the Board, will take a primary role.  He will be supported by Joseph Ogutu who is the current Director – Strategy and Innovation, Safaricom. Mr. Ogutu will be responsible for Safaricom’s day-to-day operations until Mr. Collymore’s return from medical leave.

Following the news about the CEO’s leave, the Safaricom CFO had a session with investors, and according to a Citi report afterwards on the implications of the events:

We have no concerns over operations of the company in the CEO’s absence. Based on examples in other geographies, it would take a couple of years to derail a well-run company.The company may become exposed on the regulatory side. We think the regulation is likely to remain balanced with consideration of the contribution the company makes to the state (in taxes and dividends)

The discussion about succession and its impact at Safaricom comes exactly seven years after Collymore took over from Michael Joseph as CEO. He then made his formal debut announcing the half-year results back then, and that event will recur again tomorrow (Friday) when Safaricom releases its 2018 half-year results. Also at the results announcement, updates will be given on the e-commerce plans and international expansion of the M-pesa platform.

CFO Kamath with CEO Collymore and Chairman Nganga at the Safariom 2017 results announcement in May.

At the announcement of another year of record 2017 financial results announcement in May this year, company chairman, Nicholas Nganga announced that the expiring contract of Collymore had been extended for another two years. No interim CEO will be appointed at Safaricom, Collymore came to Safaricom from Vodafone, but an appointment of a CEO is one of the governance clauses that changed with the Vodacom buyout of Vodafone’s interest in Safaricom in the middle of the year.

The Safaricom Sustainability Report for 2017 which Collymore launched a month ago, noted that the company’s shareholding had experienced a decline in local and retail shareholders due to their profit-taking from the company’s high share price and a corresponding increase in investment stakes of foreign corporate investors due to Safaricom’s performance and strong fundamentals.

State of Kenya’s NSSF

Kenya’s National Social Security Fund (NSSF) published their financial accounts in the newspapers last week after they were earlier gazetted.

The Kshs 174 billion statutory fund, had income in the year to June 2016 of  Kshs 10.7 billion which was down from 19.3 billion the year before. The was after the fund received 12.8 billion of contributions from members (up from 11.7 billion) and paid out 3.1 billion. They had investment income of Kshs 12.8 billion, and paid administrative expenses of Kshs 5.5 billion leaving a surplus for the year of  Kshs 5.2 billion, and which was down from 13.2 billion in 2015.

In terms of assets, they have quoted shares of Kshs 49 billion (down from 57 billion in 2015), treasury/infrastructure bonds of 52 billion, 8.9 billion of corporate bonds, undeveloped land of 9 billion and buildings/ land of Kshs 19.9 billion.

Top shares in the NSSF Kshs 49 billion quoted investments portfolio include 25 million EABL shares (worth 6.9 billion shillings), 320 million Safaricom shares worth 5.6B, 116 million Britam worth 5.6B, 185 million KCB shares worth 6.2 billion, 88 million Equity Bank worth 3.4 billion, 3.2 million BAT worth 2.6 billion and 56 million Bamburi Cement shares worth 9.6 billion. NSSF also owns 24 million EAPCC shares worth Kshs 868 million and 148 million National Bank (NBK) shares worth 1.4 billion.

In the 1990’s the fund was sold illiquid plots at inflated prices and in the 2000’s, it deposited some funds in shaky banks that collapsed soon after. They still have a few issues with land, and the undeveloped land assets of the NSSF include 3.2 billion worth of plots at Mavoko and a Kshs 3.5 billion plot on Kenyatta Avenue in Nairobi.

The NSSF accounts were audited, by the Office of the Auditor General of Kenya (OAG) who qualified the accounts of the fund owing to some issue including

  • Unremitted contributions; A sample of 20 employers found that they had not remitted Kshs 755 million of deductions to the NSSF.
  • Another 764 million of contributions were held in suspense accounts.
  • Hazina Plaza/Polana Hotel Mombasa had rent owed to the NSSF of 239 million.
  • Milimani Plots at Kisumu where a Kshs 178 million estate that brings no income.

Other issues flagged included:

  • The stalled Hazina Trade Centre in Nairobi, which remains 38% complete with construction having been halted after Nakumatt Supermarkets who have a branch in the building had refused to give the contractor (China Jiangxi) access to the basement where they were to provide reinforcement to pillars of the building. The OAG recommended that the NSSF take legal action against Nakumatt in order to complete the Kshs 6.7 billion construction.
  • NSSF new rates

    NSSF budgeted income for the year was  Kshs 44 billion, but only 10.8 billion was raised; This was partly due to poor performance of the portfolio of shares listed at the NSE, but also due to non-implementation of changes to the NSSF act which would have seen increased contributions from members into the scheme.

  • Illegal transfer of a plot of land from the NSSF to Kenya’s Judiciary, and works at Nyayo estate at Embakasi.

$1 = ~Kshs 100

Choosing a Pension Plan

Whether you’re formally employed at a bank or large company, a factory worker, tenderpreneur, SME/ business owner, matatu guy, farmer etc. it really doesn’t matter what you do as long as you choose a pension plan, and start investing and saving as soon as possible.

If you want to retire with money you need to pick a financial partner. You are probably in some investment fund, but is it a pension fund? RBA registered pension plans usually have the words pension or retirement in the name. Also, avoid insurance companies because they try and enhance these with other insurance benefits and it gets confusing, and takes away from the simple nature of retirement.

Collectively, at the beginning of the year, there were about 162,000 Kenyans who had placed about Kshs billion saved in individual plans. RBA had registered 43 retirement schemes for individuals from providers such as Alexander Forbes,  Amana, Apollo, British American, CFC, CIC, Co-op Trust, Eagle Africa, GA Life, ICEA, Kenindia, CPF, Octagon, Old Mutual, Sanlam, UAP and  Zimele.

These are almost all standard and they give members annual statements and hold annual general meetings to brief members on how the funds are performing. Also:

  • Depending on your current income, you may want some flexibility in terms of a plan that allows irregular deposits, had affordable investments and allows payments by standing order or mobile money (m-pesa)
  • One important consideration is also the cost of the fund e.g. Zimele quotes 2.5% per year for the personal pension plan and 2% for their guaranteed pension plan. Check with any plan what the cost is, and avoid those who charge an upfront cost for joining (if any).
  • Many of the insurance ones give the option of a guaranteed return or a higher one that depends on the market. As of 2015 pension industry fund assets were invested in government bonds (30%), followed by quoted securities (23%),  then property (19%).
  • Many allow employers to co-invest with their employees, effectively doubling their retirement savings every month.
  • There was a time when the minimum to join was about Kshs 5,000 but now the minimum for many (other than Mbao) is Kshs 200 or 500 per month. This makes them easy to join, but remember you will harvest what you invest, and this amount should be increased as s high as, and as soon as possible. There’s tax relief on pension savings of up to Kshs 20,000 per month in Kenya.

So which ones to pick? Here are 5 picks in no particular order:

mbao-application-is-simple

It’s simple to apply for a pension plan

  1. Blue MSMEs Jua Kali Individual Retirement Benefits Scheme (More on the Mbao Pension Plan under which one can save as little as Kshs 20/=). According to RBA, Mbao has the largest membership of about 75,000 members; its big attraction is its informality.
  2. Jubilee Insurance Personal Pension Plan. This is the largest individual plan in terms of assets, and its 17,000 members have saved over Kshs 7 billion.
  3. Alexander Forbes (Vuna Personal Pension Plan) (I use this one)
  4. Octagon Personal Pension Scheme: No, minimum, savings, and gets 10% a year with an income draw-down option.
  5. UAP Life Assurance Individual Retirement Benefits Plan. This pension can be combined with life assurance so that on premature death, combined benefits of accumulated savings and life assurance becomes payable.

This is part of an ongoing series on retirement, dubbed Kulegalega, with the Retirements Benefits Authority.  

$1 = Kshs 101

How to Secure Your Retirement

The last few years have been very trying to many retirees and their future is still in limbo. Some had their retirement funds that were in banks that collapsed, some bought insurance policies in companies that have had difficulties making payments on matured policies.

The Retirement Benefits Authority (RBA) oversees 1,000 individual schemes at companies and 40 others that are available to individuals (PDF) to the public. It’s important to note that insurance policies are not all retirement plans. Some insurance companies have RBA-approved  retirement schemes, but they usually have “retirement” or “pension” in the names. Any other may not have the features and protections for retirees. The goal at the RBA is to secure funds for retirees have them invested and be paid as and when they are called for to pay retirees. They do this through licensing a network of professional companies to operate retiree plans, and an RBA-licensed scheme relies on a system of checks and balances with separate roles of different players. The players include:

old-truck

  • Trustees; who manage schemes for retirees best interests of the beneficiaries,
  • Fund Managers: who prudently invest funds to grow
  • Custodians: Hold documents for the retirees fund
  • Administrators: who keep records and communicate with members
  • Actuaries

For the first two decades after independence, corporates jobs had assured retirements. They were defined as permanent and pensionable. Companies invested in their employee’s retirement and the amounts to be paid out at retirements (defined benefits) were guaranteed.

But those jobs are no more. These days if companies have pension schemes they are all defined contribution – what an employee sets aside to save and invest is what earns him/her funds when they retire, or even if you need a portion of it before retirement age e.g. for a mortgage.

The statutory retirement body, the National Social Security Fund has a long chequered history. But through working with the RBA they have moved towards becoming a proper pension body with the most important steps being that they have appointed independent custodians and investments managers. The days when most of their portfolio was in questionable land or members funds collapsed with stockbrokers or weak banks should now be behind them now. But NSSF has just 1.7 million members and over Kshs 165 billion in assets as at June 2015. And in a country of 43 million people, if half of them are under the age of 18, it still means there are  a few million working adults who probably have no pension plan for themselves who will one day get old and wonder who is going to take care of them

There are many plans all over, that allow different payments or levels of investment, and some are even shariah compliant schemes. Take up one of them. Don’t #kulegalega

If you have any questions are retirement benefits in Kenya, send an email to bankelele@hotmail.com