Major Banks Battle For 31 Billion Kenyan Shilling Pension Deal

Major banks in Kenya are reportedly in a bid for a remunerative contract that involves keeping more than 31.2 billion Kenyan Shillings in yearly pension contributions by public servants after the rollout of the fund on the 1st of January 2021.

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The National Treasury is ready to select three overseers of the billions of Kenyan Shillings collected from over 350,000 civil servants including teachers and police officers who already begun contributing to their own pension saving scheme from last month (January 2021).

With the bids for the overseer position officially closed on Wednesday the 27th of January 2021, the National Treasury will now start assessing the submissions stating that, “The top three ranked financial institutions will be recommended to be the custodians for the public service superannuation fund for each lot.”

By 2020 Kenya had 11 registered overseers of pension funds among which are Equity Bank, Prime Bank, I&M Bank, Bank of Africa, Standard Chartered Bank, National Bank of Kenya, NCBA Bank, Stanbic Bank, KCB Bank, Co-operative Bank, and SBM Bank.

Sources revealed that all the major banks applied for the contract even though it came at a time when civil servants experienced their first 7.5 percent pay cut in January 2021. The pay cut came just when civil servants began contributing to their pension savings scheme ending the 12 year postponement of an idea which first came to live in 2008.

The National Treasury Principal Secretary; Julius Muia, did not wish to comment on the selection of overseers who would be in charge of the funds from the Public Service Superannuation Scheme (PSSS).

While speaking with Business Daily Africa however, the Principal Secretary stated that “It is too early to provide details on the bids or bidders…. the procurement is still in early stages.”

According to the documents of the tender, the National Treasury revealed that the overseers will be tasked to “hold pension funds and assets in safe custody on trust for the members and beneficiaries of the retirement savings account.”

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The Treasury stated that Public Service Superannuation Scheme (PSSS) will have around 350,000 members at first along with a combination of employee and employer monthly contributions estimated at 2.6 billion Kenyan Shillings.

The pension scheme will include eligible employees in numerous agencies which are categorized as civil servants under the PSC (33,494), teachers under the TSC (127,000), as well as other personnel (99,053).

The documents of the tender state that although financial institutions are allowed to bid for all the slots, no institution will be given more than one slot.

The overseers once selected, will be charged with ensuring that the schemes’ assets are well kept, and that financial management reports on the funds are provided every quarter.

Financial institutions who qualify, will be given a portfolio that makes them overseers of the fund based on the scores in metrics like experience in custodial services for pension schemes which have a fund value of at least 10 billion Kenyan Shillings.

The National Treasury will also put into consideration the bank charges which will be attracted due to the safekeeping of the money including interests to be earned by the Treasury.

The overseers will execute statistical analysis on the return on investments and the investments from pension funds in their custody. The overseers will also provide said data to the fund administrator.

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The overseers will be delivering said services for a period of 3 years which upon expiry, will be renewable by mutual agreement for an additional period of 3 years based on performance.

Unlike workers in the private sector civil servants have not been contributing to their pension with their benefits being paid directly from taxes.

Numerous attempts to transition from a non contributory scheme to contributory scheme, were carried out from as far back as 2008. Each attempt was however met with opposition until 2020 when the National Treasury released a gazette regarding the change.

The changes made it possible for the Treasury to create governance structures for the pension scheme. This includes the appointment of fund managers and a board of trustees.

Initially civil servants were to provide 2 percent of their monthly salary to the scheme in the 1st year, 5 percent in the 2nd year and 7.5 percent from the 3rd year. That has however been replaced with a 7.5 percent contribution from their pay in their 1st year starting from 1st of January 2021.

10 years ago the retirement age in Kenya was raised from 55 years to 60 years.

According to an actuarial study which was commissioned by the Kenyan government there a contingent pension liability of 499 billion Kenyan Shillings existed at the time. By 2014, the contingent pension liability almost doubled to 990 billion Kenyan Shillings.

The pension budget also increased more than 3 fold over the past 10 years from 25 billion Kenyan Shillings in the 2008 to 2009 financial year, to 86 billion Kenyan Shillings in the 2018 to 2019 financial year.

Previous forecasts by the National Treasury revealed that the finance office will need 153 billion Kenyan Shillings for pension payments in the year until June 2022.

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