Pension schemes in Kenya are at a crossroads. Of late, the management of pension schemes has been a hot topic in the public domain attracting a variety of opinions from experts and relevant stakeholders.
At the heart of all these discussions has been a proposal to allow contributors to access their pension savings before retirement for purposes of purchasing residential houses. Pension schemes boast of an asset base of Sh1.3 trillion, and mostly invest in government securities and in capital markets.
This has made the schemes become a go-to kitty whenever government seeks to cushion citizens from the wrath of economic downfalls. Then there is the Covid-19 issue that has forced many organizations to retrench staff causing a strain when it comes to paying the exiting members.
Nothing can be more challenging to the schemes than a lack of national policy to ensure that the sole objective of pension is to safeguard the future of retirees.
With the common saying that charity begins at home and facing challenges from economic downfall and government itchy fingers ogling at pensioners’ pot, schemes must build a solid foundation to withstand the turmoil.
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This responsibility solely lies within the scheme trustees, who hold assets in the trust for the beneficiaries of the scheme. Trustees are responsible for ensuring that the pension scheme is run properly and that members' benefits are secure.
Appointing the right people to be trustees has a strong influence over how an occupational pension scheme is governed and how effectively member interests are protected. Six key aspects should therefore form an anchor to a secure future post-retirement.
One, Pension schemes should strive to have a strong chair. A strong chair makes most of the attributes of each individual trustee. Like any other board chairman of a company, the chair of a trustee board should be prepared to assume similar governance responsibilities and adapt to suit the needs of their scheme. The chair sets high standards for the entire board bringing out the diverse skills and strengths of each trustee.
Second, trustees should have scheme management skills. This entails the right governance, knowledge to effectively work together to enhance good decision making. At the heart of the decisions should be the interest of members.
Trustees ought to have a clear understanding of their roles and responsibilities. What authority do trustees have over the scheme? The scheme’s structure mission, and strategic objectives. The scheme should be run as a business with shareholders being the members.
This means that the shareholders will require to have high returns from their contributions. This calls for constant review of policies and processes depending on the business environment. The skills that different individuals bring to the board can significantly complement technical knowledge.
Thirdly, the administration aspect of the scheme is critical. This entails service provision to members. It is the face of the scheme. Failure to properly carry out any aspect of scheme administration can seriously affect members’ benefits. Trustees are mandated to pay attention to the way the scheme is administered. Trustees engage with the administrators to ensure that the scheme is being administered in accordance with the scheme rules, in accordance with the trustees’ legal obligations. The bottom end is that members must receive value for money from the administration service.
Fourth, trustees need to guide on investment governance. Right investment governance arrangements should provide the best chance for your pension scheme members to get a good outcome. Investment choices and decisions lie with trustees. Consequently, responsibilities as a result of the choices are carried by the trustees.
Trustees are expected to have suitably documented investment governance arrangements that are appropriate for their scheme’s circumstances, including their level of complexity. These arrangements should enable effective and timely decision-making, focused on the decisions most likely to make a difference.
Fifth, pension scheme members are the focal point hence their value is critical. Assessing value for members to understand what elements contribute to the value they get from the pension scheme.
The value members get from a scheme should be automatic. All members should receive good value from their pension scheme, regardless of whether you have a legal duty to assess and report on value for members annually. This calls for trustees to understand what value members want from their pension scheme.
This brings us to the sixth point of communication and reporting. Trustees must listen to members’ views and needs. Clear communication between trustees and members to help them make good decisions. Views on investment strategies and the assessment of value for members is of utmost importance. Channels of communication may include member surveys, conducting workshops, holding member AGMs or focus group forums to solicit members’ views.
Therefore, trustees have a responsibility to strengthen their individual schemes. In that essence, the schemes will be ready to benefit from reforms that are being proposed by various players in the industry.
The Association of pension trustees and administrators of Kenya (APTAK) has an uphill task to sensitize scheme members on the importance of qualified trustees to manage pension schemes.
The writer comments on maritime, a member of the Kenya Ports Authority Pensions (DC) scheme, and APTAK member.