Category Archives: retirement

Kenya Pension Fund Managers: Who does What?

We have four professionals involved in the running of a pension scheme, namely: 

  • Trustees who are responsible for management of the scheme and act in the best interests of the beneficiaries. 
  • Fund Managers to provide investment advice as well as investing the scheme funds.,
  • Custodians for the safe custody of scheme assets and title documents. 
  • Administrators who carry out administrative duties including keeping members records.

The lines above are excerpts from a speech by Edward Odundo, CEO of the Retirement Benefits Authority, at the rebrand and launch, of Liberty Pension Services, one of the leading independent pension fund administrators, which has now rebranded as Enwealth. He also said that the retirement benefits industry assets have grown tremendously from Kshs 50 billion in 2000 to Kshs 814 billion in 2015, and should reach Kshs 1 trillion by the end of 2016.

All the above entities are licensed by the Capital Markets Authority.

$1 = Kshs 100

 

NSSF and SME’s Part II

This weekend, the National Social Security Fund ran an advertisement in the newspapers clarifying amounts that employers and employees will pay now that changes to the NSSF act are legal.

Earlier media, and social media, reports had NSSF taking as much as 12% of an employee’s earnings. But the NSSF ad introduced the phrase pensionable salary on which the deduction is based – so it’s a percent of Kshs. 18,000 (pensionable salary) and so if someone earns Kshs. 100,000 ($1,175 per month) and their employer has no current pension scheme, their deductions are: 

Tier 1

  • Kshs 360 from the employer.
  • Kshs 360 from the employee.

Tier 2

  • Kshs 720 from the employer. 
  • Kshs 720 from the employee.

So the total payment for that employee, that an employer will remit to the NSSF is Kshs 2,160 – and not Kshs 12,000. This still amounts to a payment that is five times what a typical company was making to the NSSF last year (Kshs 400 per month, per employee)  

From a note at Alexander Forbes Financial Services: The effective date (of the NSSF Act) was 10 January 2014, literally giving employers no time to apply for the opt-out. They thus will have to remit both Tier 1 and Tier 2 contributions to NSSF until the opt-out is granted…also that these amounts will increase each year for the next 5 years.

EDIT – Jan 21: The Government has deferred the commencement of the new NSSF Act to the end of May 2014. This means that the contributions to the fund will be made at the old rate.  Read more.

EDIT February 2023: 

Kenya SME Options after the 2013 NSSF Bill

The new NSSF Bill enhances the level of mandatory retirement savings to be made by, and on behalf of, an employee. It classifies the contributions made towards retirement savings into various tiers for which each tier has a different treatment. For instance, the first tier must be contributed into the National Social Security Fund (NSSF) while the second tier may be contributed to a private retirement fund if certain requirements are met.

To illustrate, in year 1, the contributions to NSSF will increase from Kshs 400 (Kshs 200 each done by the employer and the employee) to Kshs 720 (Kshs 360 each done by the employer and the employee).

The balance of the 12% of earnings (6% each done by the employer and the employee) may be contributed to a private retirement fund subject to conditions detailed therein.

Thus, there are various options available for an employer seeking a retirement solution. E.g. for an employer with a staff base of 10, setting up one’s own retirement fund may not be prudent due to time and cost considerations. It is instead advisable that they consider joining an already existing retirement fund under an umbrella arrangement or under a personal pension plan. They are further encouraged to use a fund that is registered by both the Retirement Benefits Authority and approved by the Kenya Revenue Authority. A list of umbrella funds and personal pension plans registered by the RBA can be found at their website.

Lastly, Alexander Forbes has a wealth of experience in structuring retirement solutions that are customized to suit the needs of an SME – and that between our umbrella fund (the Alexander Forbes Retirement Fund) and our personal pension plan (the Alexander Forbes Vuna Pension Plan), we can find an exciting solution for SME’s. We are also pleased to meet with companies and talk further through the changes to the NSSF Act and its impact.

Adapted from Angela Okinda of Alexander Forbes

Succession Talk

There has been a lot about succession in the news today:

  • Legendary investor Warren Buffet outlined his succession plan for his company and shareholders.
  • Also, legendary World Cup match predictor, Paul the octopus (and beloved by gamblers anonymous), died in his sleep in Germany, without leaving a successor.
  • NIC Bank held a succession planning clinic for its customers and entrepreneurs
  • This is also the week in which retiring Safaricom CEO Michael Joseph is being feted every other day somewhere in Nairobi while his successor Bob Collymore waits in the wings.
  • And at Equity Bank, CEO James Mwangi finally addressed and put to rest the matter of his succession. Announcing the banks Q3 results (with group asset of Kshs 136 billion ($1.6 billion) and profits of Kshs 6.4 billion ($80 million), he was asked about a long-standing issue with some with investors and shareholders – ‘what would happen to the bank if something happened to him?’

His answer? Profit would go up because he’s currently highly paid, and his style over 18 years has changed to one who takes less risks! On a serious note, he pointed out to several of the bank’s current managers who had more experience and knowledge than he did (but he is better than selling himself), and would form a pool from which the Board could pick out a successor. Some of the people he pointed out, and who may succeed him, include Gerald Warui (his principal deputy), Mbaabu Muchiri (ex-Coca Cola and Central Bank who reduced housing bad loans), Michael Wachira (ex-Fortis), Allan Waititu (brought Finacle to the bank & automation and is now in charge of new projects), Samuel Makome (ex-Citibank), Bildad Fwama (ex Citibank, British American), and Mary Wamae (who negotiated the first ever conversion of the Kenyan build society to a bank, the Helios deal, and regional investments in Uganda, Sudan, and currently in Rwanda and Tanzania which are aimed to open in Q1 of 2011)

He also noted that with his busy activities outside the bank at (Vision 2030, Advisor to UN & World Economic Program), he has delegated a lot to the point that he is not a signatory at the bank and does not sit on any of the seven board committees.

Apple’s Big Man

Apple CEO and founder Steve Jobs is back to work and Mac users around the world and apples shareholders can exhale and look forward to more years of revolutionary products. But what does it mean when a CEO is so intricately tied to his brand and has no clear succession strategy?

His mysterious five month absence from work is rather similar to that of the President Omar Bongo who, however, did not return to rule Gabon.

Hundreds of family heads, company founders, business leaders, patricians, and presidents consider themselves immortal and, like Apple, rarely entertain discussions on health or succession.

Blind Item: There are three gentlemen in Kenya who fit the equal of Steve Jobs – leaders so closely inter-wined with their brand and with no defined succession plan: one is a center of power, one is a leading revenue generator, one is a fast banker; two have disclosed medical problems, two have had recent aircraft mishaps, and two have no defined successors. All three are integral to their brand and it is important that their partners and shareholders define real succession strategies.

Finally, now that the real Steve Jobs is back to work we can resume reading communiqués from the other Steve Jobs.