Trustee remuneration: What are pension schemes for?

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Edward Odundo – CEO, RBA (Right) Simon Wafubwa – CEO, Enwealth Financial Services, and Dorcas Wainanina, Executive Director HR Institute human Resource Management

“With the value of pension fund assets growing five-fold in the last 10 years to over Sh900 billion, and the average pension fund value – per scheme – shifting from under Sh100 million to about Sh500 million; the issue of remunerating the individuals responsible for safeguarding the growing funds becomes critical.”

BY VICTOR ADAR

As always the case, pension trustees are responsible for ensuring that pension schemes are run properly and that members’ benefits are secure. But while there is an industry guideline for remunerating board members for their oversight, Kenya seemingly lacks a similar guideline for pension scheme trustees thereby kicking up a storm as far as the person required by law to manage and distribute property or assets for the benefit of a third party is concerned.

It is against this backdrop that research based on Governance of pension schemes in Kenya, and the case of trustee remuneration by Enwealth Financial Services ltd, in partnership with the Institute of Human Resource Management and Strathmore University hosted a forum on the governance of pension schemes.

Dubbed “Enwealth Conversations”, experts angled on the bad pension situation mainly focusing on the remuneration of pension fund trustees in Kenya, sending a clear message that it is time to wake up and smell the coffee a time when addressing issues affecting social security financial services and employee benefits in Kenya is a big issue especially for government which pays huge sums of money to their trustees, but are unable to pay out pensions.

Try to picture tales of retired civil servants whose lives take weird turns simply because their pension took too long to go through. It is such worrisome experiences of pensioners that are pushing social security experts to find a solution, ensuring that a guiding policy formulation that will benefit the whole lot is put in place.

This trend saw widely knowledgeable panellists who include Simon Wafubwa, Enwealth Financial Services CEO, Martin Odour CEO, Leadership Group Ltd, Dorcas Wainaina Executive Director, Institute of Human Resource Management, Thomas Kibua Strathmore University and James Boyd Mcfie, PhD Strathmore University, move to try and tackle the case for trustee compensation.

Mr Wafubwa said: “With the value of pension fund assets growing five-fold in the last 10 years to over Sh900 billion, and the average pension fund value – per scheme – shifting from under 100 million to about Sh500 million; the issue of remunerating the individuals responsible for safeguarding the growing funds becomes critical.”

The collaboration, Wafubwa said, “is aimed at generating authentic information and market experience with a view to propose innovative social security products and contribute to viable policy formulation.”

As it turns out, this particular move is opening a big window of opportunities for pension administrators especially going by the fact that there exists a shared vision of better livelihoods in retirement and enhancing sustainable growth and development of social security financial services in Kenya. Enwealth for example, is currently managing pension funds worth Sh45 billion despite the fact that schemes and the current compensation structure of trustees is still not straight forward. So once things are in order, pundits say, more and more players will vie for a piece of the pie.

Though written and compiled by members of the social security study group in the Strathmore Institute of Mathematical Sciences through partnership with Enwealth Financial Services supported by the Institute of Human Resource Management through a collaborate partnership, the “Governance of pension schemes in Kenya” report comes at a time when in exercise of Finance Act 78 (3), the Authority issued practice note number RBA/ 2 – and subsequently replaced by RBA 001/2013 aimed at making things happen.

Summary on governance of pension schemes

The trustee role provides a key bridge between the aspirations of scheme members saving for their retirement income, the strategy to meet the aspirations, and the eventual retirement benefit payout.

As pension funds mature, it is clear that the traditional voluntary based model of pension scheme governance may not work as well with increasing volume and complexity in the regulatory and investment environment.

Further, regulations have introduced the legal requirement for knowledge and understanding of highly technical areas such as investments, mortgage loan facilities and sponsor activities.

On the trustee performance review and fund performance though, only 32% of the surveyed trustees are formally reviewed for their performance, 25% indicate that no performance review is conducted while 78% of non-remunerated trustees did not receive a service contract on appointment as trustees, compared with 47% for those remunerated.

Trustee perception on engagement and remuneration
While 88% of surveyed trustees believe that they should be remunerated for their role, 44% advocate for compensation point to additional responsibility and 34% believe that compensation could open an avenue for abuse in pursuit of personal monetary interest.
Further, 53% indicate time to be the main constraint to their ability to perform their duties satisfactorily; 23% cite fund governance issues while 13% indicate they have no constraints to performing their duties. But when 11 different criteria were suggested as a basis for remuneration, 31% felt that remuneration should be based on fund performance with 17% suggesting competitive market benchmarked basis.