Why county staff’s pension fund is in RBA sights

A court order halting the deregistration of the Local Authorities Pension Trust (Laptrust) has put its more than 22,000 members at ease — at least for now.

Earlier this month, industry regulator Retirement Benefits Authority (RBA) moved to withdraw a licence issued to CPF Financial Services — the administrator of Laptrust’s retirement scheme.

On Friday, however, the High Court allowed CPF Financial Services’ application for a stay on the deregistration, pending the hearing and determination of RBA’s case against the fund on September 29.

CPF Financial Services, which was formerly called Laptrust Administration Services Ltd, alleges that RBA “failed to take relevant factors into consideration” in arriving at its decision.

RBA, however, has claimed Laptrust and CPF’s operations have been unclear due to the coming in of multiple subsidiaries, a situation that has also caught Attorney General Githu Muigai’s attention.

REVOKE LICENCE

The regulator’s decision to revoke CPF Financial Services’ licence had sent shockwaves in the industry.

First, it would have meant that about 160 employees of CPF Financial Services would be technically jobless as the entity could not undertake any business activity, following the rescinding of its certificates of registration.

Second, Laptrust’s future would be uncertain as it would not be allowed to run any pension scheme in Kenya.

However, Laptrust Managing Director Hosea Kili maintained that his institution, which controls assets valued at Sh24 billion, has not violated any laws as regards the management of retirement benefits for its members.

Last week, he said the withdrawal of CPF’s licence “does not in any way suggest the interruption of the management of the schemes or closure of our clients’ schemes”.

Industry insiders say RBA’s move followed concerns Mr Muigai raised in December last year on the status of Laptrust and CPF Financial Services.

The AG observed that Laptrust is a public entity established by law under the direction of a board of trustees appointed by the minister responsible for Local Government. This means that any changes to the scheme would need to be done through subsidiary legislation or an Act of Parliament.

However, Muigai said, substantial changes had been effected upon the status of the fund without the approval of RBA as provided by law.

“In view of this, it may safely be concluded that the assets of the Local Authorities Pension Trust were improperly vested in Laptrust Retirement Services Limited (one of Laptrust’s subsidiaries),” said Muigai in a memo.

Necessary step

But in a media briefing in July, Mr Kili said there had been some misinformation.

“As a matter of fact, our operations are above board and in adherence with the laws of the country,” he said.

Laptrust said its resources are held by the Local Authorities Pension Trust Registered Trustees, a body duly incorporated under the Trustees (Perpetual Succession) Act.

Kili said the decision by the trustees of Laptrust to incorporate the company was intended to separate in-house scheme administration in line with global best practice.

“It is indeed a necessary step to ensure prudence in the management of members’ funds.”

Business Beat has established that RBA had issued the administrator with a conditional licence, pending the elimination of the conflict of interest that “exists between Laptrust and Laptrust Administration Services Ltd (now CPF Financial Services)”.

This was especially with regards to concerns that Kili was also doubling up as a managing trustee at CPF Financial Services.

It is understood that RBA’s board of directors was incensed by the fact that Laptrust had not shown any effort towards the elimination of the conflict of interest.

“Members, therefore, resolved that the conditional registration of Laptrust Administration Services Ltd (CPF Financial Services) be revoked in accordance with the law, and the company be wound up and its assets transferred back to the Local Authorities Pension Trust,” a source at the meeting said.

External parties

But in an advertorial on Thursday, which was signed by “group managing director” Kili, Laptrust said: “The company’s CEO (Kili) does not double up as the managing trustee of the Laptrust schemes, following the outsourcing of the administration role for the scheme to CPF; the corporate administrator.”

In the notice, the fund pegged its woes on industry rivalries: “It has come to our attention that external parties have been feeding misleading information on the legality of our existence.

It further claimed: “This is especially after the county governments endorsed Laptrust (Umbrella) Retirement Fund as the scheme of choice ….”

In June, the Council of Governors wrote to county public service boards, approving of Laptrust (Umbrella) Retirement Fund offering retirement benefits to county government staff.

The council’s chairman, Mr Isaac Ruto, through a circular, said the move was in tandem with the provisions of the County Governments Act.

However, some counties said they would rather sign up with Laptrust’s competitor, the Local Authorities Provident Fund (Lapfund), whose fund value stands at about Sh21 billion.

As at the end of July, more than 30 county assembly boards and 10 county public service boards had entered into an agreement with Lapfund, plunging the new pension scheme plan for county workers into further confusion.

Stiff opposition

Critics said the Council of Governors may have overstepped its mandate as the responsibility to select a pension scheme lies with individual counties and their service boards.

The stiff opposition to the council’s circular endorsing Laptrust was also partly attributed to county employees not being involved in the selection process.

According to the chairperson of the Kenya County Government Workers Union, Ms Mary Murongoro, no decision on their members can be reached without the union’s involvement.

“Our input is what will determine the pension scheme of choice for our members,” she said.

However, Laptrust’s intention to roll out a scheme for county employees was headed for headwinds for at least three months. This is after RBA issued the scheme with a memo on the appointment of Mr Alfred Odongo, the managing director of Roberts Insurance Brokers Ltd, to inspect the fund.

This followed a letter to Kili on September 4, which indicated that RBA had resolved that a forensic audit of the scheme be carried out to establish its compliance with the law and the application of the scheme assets.

Forensic audit

Insiders say the inspection would have taken the form of a forensic audit to establish if the scheme is complying with the law in its activities, if assets are being managed prudently by the trustees, and to identify reasons for any deficits.

However, Laptrust also got a court order halting the audit, arguing that the regulator does not have the mandate to commission one.

Some of the issues Mr Odongo was expected to evaluate over 90 days included the appointment of service providers, collection of contributions, and financial management and application of scheme funds.

Others were the costs of administration and management of the scheme, payments of benefits and expenditure involving corporate social responsibility activities.