Planning for retirement is one of the most important financial decisions anyone can make. With life expectancies rising, retirement can last 20 years or more, which means you need to be prepared with adequate savings and income. For those working in Kenya, the Retirement Benefits Authority (RBA) is a key player in the country’s retirement system.
The RBA is a statutory body established in 1997 through an Act of Parliament known as the Retirement Benefits Act. The RBA regulates and supervises the retirement benefits sector in Kenya. Their mission is “to regulate and supervise the retirement benefits industry for the protection of plan members’ interests and ensure orderly growth of the sector.”
Some of the key roles and responsibilities of the RBA include:
- Registering and licensing retirement benefits schemes, trustees, custodians, and administrators
- Approving rules and amendments for retirement benefits schemes
- Conducting on-site inspections of schemes to ensure compliance
- Resolving complaints and disputes raised by members of schemes
- Protecting benefits through approving trustees and custodians
By understanding the RBA’s purpose and functions, those saving for retirement in Kenya can feel more secure that their interests are being protected. The RBA oversees thousands of retirement schemes that Kenyans contribute to through their employment.
In this expert review article, we will explore the structure and operations of the RBA in more detail. We will look at the licensing and registration process, the different types of retirement schemes in Kenya, oversight and compliance activities, member dispute resolution, and tips for getting the most out of your retirement benefits. Whether you are already contributing to a retirement scheme or just starting to think about your future financial security, learning about the RBA will give you confidence and peace of mind.
Overview of Kenya’s Retirement Benefits System
Kenya’s retirement benefits system consists of both public and private sector retirement schemes that Kenyans contribute to through their employment. Here is a quick overview of the major components:
- The National Social Security Fund (NSSF) – A public mandatory scheme for all employees in the formal sector managed by the NSSF Board. Contribution is capped at Ksh 200 per month.
- Occupational Retirement Schemes – Private schemes established by employers for their employees. They include:
- Pension schemes – Defined benefit schemes where benefits are predetermined based on your length of service and salary.
- Provident schemes – Defined contribution schemes where benefits depend on how much you and your employer contribute and investment performance.
- Individual Retirement Schemes – Private schemes that individuals can set up independently to supplement their occupational scheme benefits. They include individual pensions, pension plans, and annuities.
The RBA oversees and regulates all types of retirement schemes in this multi-pillar system, except the NSSF which is regulated under a separate law. This helps ensure proper governance and protection of benefits for all Kenyan retirement scheme members.
Licensing and Registration of Schemes by the RBA
One of the RBA’s primary roles is overseeing the licensing and registration of all private retirement benefits schemes in Kenya. The requirements and processes are laid out in the Retirement Benefits Act 1997 and regulations passed by the RBA.
All retirement benefits schemes must be registered with the RBA within 60 days of establishment. To register, the scheme must submit the prescribed application forms and registration fee. Key documents required include:
- Trust Deed and Rules – Governing rules for the scheme
- Letter of Appointment – For trustees and custodian
- Application forms – For sponsors, trustees, custodians, administrators
The RBA reviews the application to ensure compliance with regulations. Once approved, the scheme is issued a Registration Certificate.
In addition to registering the scheme, all service providers to the scheme must be licensed by the RBA, including:
- Trustees – Govern the scheme on behalf of members
- Custodians – Hold safe custody of scheme assets
- Administrators – Manage day-to-day administration of the scheme
- Fund Managers – Invest scheme funds and manage the portfolio
These key service providers must meet fitness and propriety requirements to be licensed. The RBA also sets out conditions for licensing including minimum capital requirements, professional indemnity cover, and more. Licenses must be renewed annually.
The licensing process protects members by ensuring competent qualified professionals are managing the scheme.
Types of Retirement Schemes in Kenya
There are two main types of retirement schemes overseen by the RBA – occupational and individual schemes. Let’s look at each in more detail:
Occupational Retirement Schemes
Occupational schemes are setup by employers for their employees. They are divided into defined benefit and defined contribution schemes:
- Defined Benefit (DB) Schemes – Benefits are pre-determined based on length of service and salary. The employer bears the investment risk and must make up any shortfall. Includes pensions and insured schemes.
- Defined Contribution (DC) Schemes – Benefits depend on contributions and investment returns. Members bear the risk. Includes provident schemes.
DB schemes pay out a fixed regular income for life after retirement. DC schemes pay out a lump sum. Many employers now offer DC rather than DB schemes.
Individual Retirement Schemes
These are personal schemes individuals set up to supplement their occupational scheme benefits. They include:
- Individual Retirement Benefits Schemes – Allows voluntary contributions to a registered scheme.
- Pension Plans – Personal pension plan with an insurer. Provides a regular income after retirement.
- Annuities – Allow you to convert a lump sum into a regular income stream.
RBA licensing applies to the providers offering individual schemes. Oversight protects members’ interests.
Oversight and Compliance by the RBA
The RBA proactively oversees all registered retirement schemes to ensure good governance and compliance. Some key oversight activities include:
- Onsite inspections of schemes, trustees, custodians, and administrators.
- Review compliance with regulations and submission of statutory returns.
- Identify gaps for corrective action.
- Initiated based on public complaints or risk assessments.
- Review suspected fraud or mismanagement.
- Protect members’ interests.
- Fines, suspension, removal for non-compliant entities.
- Ensure adherence to regulations.
- Research, collect data, analyze trends in the sector.
- Inform policy and strategic decisions.
Robust oversight by the RBA promotes disciplined administration and accountability. It gives members confidence their benefits are secure.
Dispute Resolution Services for Scheme Members
As a regulator, the RBA also assists members who have disputes with their retirement scheme.
Common disputes include:
- Delays in benefit payments
- Incorrect benefit calculations
- Poor member services
- Unaccounted for contributions
Members can submit written complaints to the RBA. The RBA will review the case and notify the scheme to resolve the complaint within set timelines.
For complaints not adequately resolved, the RBA offers free mediation services to find a solution acceptable to both parties.
If mediation fails, the dispute can proceed to arbitration by the RBA Tribunal as a last resort. The Tribunal can make a binding award.
Having an independent regulator to assist with dispute resolution gives members critical support in safeguarding their retirement benefits.
Tips to Get the Most Out of Your Retirement Scheme
As an existing or potential member of a Kenyan retirement scheme, here are some tips to help you maximize your retirement benefits:
- Understand your scheme rules – Know your scheme type, contributions, fees, investment options, and benefits structure.
- Review statements – Regularly review benefit statements to track your accrued benefits. Follow up on discrepancies.
- Consolidate accounts – Consolidate multiple small pensions to reduce costs and simplify management.
- Voluntary contributions – Make additional voluntary contributions to supplement your benefits.
- Understand your investments – Learn about the asset allocation and risks to make informed decisions.
- Designate beneficiaries – Designate dependents as beneficiaries to receive your benefits if you pass away.
- Retire on time – Retire when eligible to start receiving your benefits. Delaying can erode the pension’s value.
- Seek help – Consult with an advisor to optimize your retirement plan.
With greater awareness, you can take control and maximize the value of your retirement scheme.
The Licensing and Registration Process
The RBA follows a rigorous process to license and register retirement benefits schemes, trustees, custodians, administrators, and other service providers. Understanding this process can help members gauge the credibility of their scheme.
The Act establishes eligibility criteria for licensing including:
- Sufficient financial resources and capital
- Qualified personnel with proof of expertise
- Governance policies and risk management systems
- Adequate professional indemnity cover
- Clean legal and regulatory record
Applicants must prove they meet requirements. This ensures competence and trustworthiness.
Application and Vetting
Eligible applicants submit registration forms, supporting documents, and licensing fees to the RBA. Detailed vetting follows:
- Background screening of promoters and key personnel
- Assessment of systems, policies, procedures
- Onsite pre-licensing inspection
- Reference checks and industry consultation
Vetting verifies capacity to manage funds safely and professionally.
Approval and Licensing
The RBA will approve or decline an application based on vetting results. If approved, the license is issued specifying:
- Licensed services permitted
- Conditions of the license
- Capital and prudential requirements
Licenses must be displayed prominently. Renewal is required annually.
Rigorous licensing boosts integrity and competence in the sector. Members can take comfort knowing their providers met RBA standards.
Types of Retirement Schemes in Kenya
Beyond the differences between DB and DC schemes, Kenya has specific types of retirement schemes as classified by the RBA:
Pension schemes provide a guaranteed, defined level of income in retirement. They include:
- Occupational Pension Schemes
- Individual Pension Plans
Members contribute during employment and draw a monthly pension after retiring. The income is determined by salary and years of service.
Provident schemes pay a lump-sum cash benefit upon retirement. Contributions are defined while benefits depend on accumulated funds. Types include:
- Occupational Provident Schemes
- Preserved Provident Funds
- Individual Provident Schemes
Lump-sums allow more flexibility but carry risks of misuse. Monthly pensions provide secure lifetime income.
Umbrella Retirement Funds
Umbrella funds pool together multiple employers. They allow small employers to access economies of scale. Employees of participating employers all belong to the common scheme.
Umbrella funds are efficiently run by professional RBA-licensed trustees and asset managers. This provides low costs and strong governance for members.
Compliance Requirements for Schemes
The RBA outlines rules that all retirement schemes must comply with. These requirements are for the protection of members and promote accountability.
- Trustees must adopt key policies including:
- Investment policy
- Risk management policy
- Communication policy
- Ethics and conflict of interest policy
Policies guide decisions and oversight.
- Annual audited financial statements
- Quarterly scheme performance reports
- Regular member benefit statements
Financial reporting provides transparency.
- Annual general member meetings
- Access to rules, policies, and documents
- Respond to member queries within set timelines
Proactive communication fosters trust.
Registration of Changes
- Changes in trustees, custodian, administrators must be reported to the RBA
- Amendments to rules require approval
Updated licensing ensures continuous oversight.
Compliance is monitored through onsite inspections, annual scheme returns, and audited accounts. Financial penalties, suspension, and deregistration act as deterrents for non-compliance.
Adherence to RBA compliance rules provides discipline and security for members.
Securing Your Benefits During Employment Exits
One of the main risks to retirement benefits is loss of contributions and accrued benefits when changing jobs. The RBA has regulations to secure members’ benefits in such cases:
Pension funds must retain benefits of members leaving service before retirement. The accrued pension remains in the fund, is exempt from tax, and continues earning interest until the pensionable age is reached.
Members have the option to:
- Transfer the lump sum to a new employer’s scheme
- Preserve the benefits in an RBA-approved preservation fund
- Take a cash payout after tax deduction
Preservation funds maintain the tax-free status until retirement. This prevents erosion of retirement savings when changing jobs.
With umbrella funds, members remain in the umbrella fund even after changing employers. Contributions simply switch to the new employer. This fully secures accrued benefits.
The RBA rules on benefit portability empower members and give peace of mind when changing jobs before retirement.
Dispute Resolution Case Examples
Common disputes that get escalated to the RBA provide insights into how the Authority resolves issues to protect members. Some examples:
- Delayed Benefit Payments – Member complaints of delayed pension payouts may require the RBA to investigate non-compliance and direct schemes to resolve backlogs.
- Unremitted Contributions – Failure of employers to remit employee/employer contributions regularly may result in RBA enforcement including ordering remittance with interest.
- Administrator Negligence – Complaints about errors in benefit calculations can lead to RBA sanctions against administrators for negligence, even requiring compensation paid out to affected members.
- Trustee Conflict of Interest – Suspected conflict of interest among fund trustees could prompt RBA investigation and suspension from trusteeship if confirmed.
- Custodian Fraud – Any suspected fraud by custodians would see their license suspended pending forensic audit, prosecution, and compensation to the fund for losses.
The RBA treats all complaints seriously and directs appropriate restitution. These actions prevent exploitation of members.
Retirement Planning Tips for Members
Here are some additional practical tips for current and future retirement scheme members to boost retirement readiness:
- Start early – Time allows benefits to compound for better returns
- Increase voluntary contributions – Top up even small amounts consistently
- Understand investments – Learn about balanced and life stage funds to grow savings
- Consolidate accounts – Bring together pensions from different employers
- Check fees – Minimize administrative and transaction fees which erode savings
- Delay withdrawals – Don’t access benefits before retirement unless absolutely necessary
- Seek financial advice – Pay for professional advice on optimizing your retirement plan
- Enroll family – Cover dependents for benefits in case of a member’s early death
- Plan ahead – Set target income, pension option, and tax planning 5-10 years pre-retirement
Proactive planning and engagement will lead to a more financially secure retirement.
In conclusion, the RBA plays an invaluable role in overseeing Kenya’s retirement benefits sector for the protection of members. By licensing service providers, enforcing good governance, resolving disputes, and educating members, the RBA promotes trust, transparency and growth of a vibrant pensions industry.
Employees enrolled in registered schemes can be reassured their benefits are prudently managed to provide a secure income after their working lives.
With pensions covering a significant and rising proportion of the working population, the RBA strives to ensure these collective savings support dignified livelihoods for Kenyans in their golden years.
The continued strengthening of regulation and supervision will give savers confidence to contribute to their retirement goals and unlock the full socio-economic potential of Kenya’s retirement benefits sector.