New management system to protect pension funds

By Luke Anami

Pension funds should initiate a risk-based approach in the management of funds.

This will ensure protection of members’ cash, a financial service provider has said.

Alexander Forbes said the risk-based monitoring system of the activities of pension funds would ensure they operate within the pension regulatory framework.

The firm’s Managing Director Sundeep Raichura said the proposed framework should be in place to safeguard pension funds.

He made the remarks during a workshop to sensitise trustees and pension schemes managers on the new supervisory approach yesterday in a Nairobi hotel.

System adoption

Raichura, who supports the new approach, which the Retirement Benefits Authority (RBA) announced last month, said worldwide pension schemes are adopting the system to ensure pension funds are safe and are not prone to abuse.

The proposals outlined last month by the RBA call for a shift from the compliance-based approach to risk-based approach.

"They allow supervisory authorities to take a pro-active role to avoid potential problems before they occur as opposed to a reactive compliance-based regime which most schemes have adopted," explained Mr Raichura.

The approach is a departure from the former compliance-based attitude to supervision where all pension funds were treated the same.

He said rather than relying on the returns submitted, RBA will shift focus to internal structures of individual schemes to further strengthen their governance structures.

"Risk based supervision specifically attempts to vary the scope and intensity of supervision according to the level of risk to which individual pension funds are estimated to pose," said Raichura.

Further, risk-based activities have variation depending on the regulatory framework, legal environment, policy choices and a variety of factors a country can adopt.

He said the sector had grown in the last 10 years from Sh45 billion to Sh200 billion, excluding funds held by the National Social Security Funds.

"This is why emphasis should move from a compliance-approach to risk-based assessment," he said.