By Jackson Okoth
Treasury has kicked up radical reforms in the pension industry, which seek to protect contributions by members of retirement benefits schemes from decline.
This comes after the Sh300 billion pension sector suffered huge losses due to poor performance of the Nairobi Stock Exchange and offshore markets.
This year’s Budget proposes amendments to Retirement Benefits Authority, to spruce up the sector.
" We have witnessed in the past imprudent investments made by a category of pension schemes in total regard of the RBA rules and regulations, leading to huge losses of members hard earned savings," Finance Minister Uhuru Kenyatta said.
He directed that all future contributions to the National Social Security Fund (NSSF) be invested in Treasury Bills and Bonds. This will lower the investment risks of pension savings while boosting the Government’s deficit financing measures.
lowering the risk
While defined benefit schemes were funded up to 80 per cent, this limit has been pushed to 100 per cent, thereby lowering the risk of pension liabilities accumulating.
"Although schemes have continued to be valued, it has been noted that schemes which are being discontinued have had difficulties meeting their liabilities," Uhuru said.
Previous regulations provided that where the funding level is below 80 per cent, then a remedial plan needed to be submitted to the RBA.
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A key weakness of this regulation is that no minimum basis was prescribed for this standard. Further, there are no explicit requirements in relation to the form and content of statutory remedial plans.
Providing relief to pensioners, those with a monthly pension income of Sh25,000 will be removed from the income tax bracket, up from Sh25,000. In the past, pensioners have not had regular increments to cushion themselves from effects of high cost of living.