When a matter that rarely comes to the fore suddenly bursts into mainstream debate, the conversations are bound to be interesting, and even controversial sometimes. One such matter concerns compensation of pension scheme trustees for their service.
The big question that is being debated worldwide and has entered the local scene is: Should pension scheme trustees be remunerated beyond the usual board meeting allowances they generally receive?
A recent study by Enwealth Financial Services posing this big question portrayed diverse views. Some people replied with an outright no, arguing generally that pension trustees were, in essence, volunteers. Some respondents appeared caught by surprise and opted to stay in the middle. Others said a big yes! According to the study, 88% of trustees surveyed believe that they should be remunerated for their role.
Prevailing circumstances in Kenya’s pension environment presents a case for recognition of the role individuals who volunteer their time, expertise and experience in oversight of pension funds as trustees receive; whether through remuneration or other forms of awards for their service.
While the work they do is by no means small – entailing financial stewardship and promotion of compliance, investments, accountability, communication and risk management in addition to administrative responsibilities, the demands for their contribution are about to multiply more than they have in the recent past.
The pension industry in Kenya has expanded quite rapidly in the last few years, and signs of further growth are prominently written on the wall.
Between 10 years ago and now, national pension fund assets have increased five-fold. They now total more than Sh900 billion in worth. In the same period, the average pension fund value per scheme has risen from Sh100 million to Sh500 million.
With more employers coming to the realisation that retirement benefits cannot be ignored if they are keen to attract and retain talent, these figures can only go up. More occupational retirement benefits schemes are coming up.
The March 2017 gazettement of Umbrella Retirement Benefits Schemes Regulations 2017 will invite more employers to the field and push further growth in the industry.
With these among other developments, Kenya’s economy is staring at a pension industry that is destined for an explosion of growth. The envisaged vibrancy and competitiveness will no doubt require greater involvement of scheme trustees to serve the interests of their members more adeptly.
This is even more so as the workplace dynamics of the current century presents unique demands in terms of the design of effective and relevant employee retirement schemes.
More are opting to take the form of defined contribution schemes. In such schemes, the members, and not the employers, bear the risk of adequacy of pension funds on leaving active work.
Trustees of such pension schemes are tasked with ensuring that funds are invested in such a way as to secure competitive returns.
The average scheme has thus shifted from the choice of simply placing all its funds in government securities to active investment management. Unlike before, this calls for greater research and analysis of what the market offers and effective governance and risk management with the support of the fund administrator and the fund manager. Nonetheless, trustees retain overall responsibility in oversight and have to immerse themselves much deeper into their service.
The increased pressure to ensure better governance and protect members’ savings cannot be taken for granted. It places a higher demand on the trustees who are charged with the overall governance of pension schemes. Trustees have their bit to play and it is time we discussed remuneration of trustees objectively with a view of putting in place policy guidelines.
The study by Enwealth Financial Services shows that pension scheme trustees generally earn from sitting allowances. These average just about Sh8,200 per sitting for the statutory board meetings in a year. The Retirement Benefits Authority recently provided guidelines that trustees shall sit for at least two board meetings a year. For many, it means that any other contributions they make outside the board meetings go without any form of compensation or even recognition by their employers. Yet the foregoing conversation suggests that their service will increasingly be required beyond attending statutory board meetings.
SIMON WAFUBWA is CEO Enwealth Financial Services Ltd