Although Kenya’s pension fund sector is ranked the biggest in the region with over Sh1.4 trillion worth of savings invested in various asset classes, just three million out of 27.1 million in the labour force have a pension cover.

Cytonn, a real estate and investments company says despite the significant developments, the pension coverage in Kenya is still low, currently at just 20 per cent.

It attributes the slow growth to factors such as market volatility, a slowdown in economic growth, unemployment and access to pension savings before retirement.

“Low prioritisation of retirement planning is another key concern despite the existing amended industry regulations meant to strengthen the legal and regulatory framework in the pensions sector,” a weekly report by the firm reads in part.

Hosea Kili, County Pension Fund (CPF) and Local Authorities Pensions Trust (LAPTRUST) chief executive, now wants the sector regulator to consider expanding social security coverage by making pension contributions mandatory for all Kenyans if the sector is to grow beyond its potential.

The establishment of a universal fund, he said would assist by allocating a percentage of the national budget to go towards universal pension and medical coverage.

“This can be achieved by introducing a pension levy on mandatory goods and services to realise mandatory State social security. It could also look at a levy on vital goods such as airtime, a small portion of which can be built over time,” advised Kili.

He said the proposed universal fund, should be implemented as a flagship project under Vision 2030 while benchmarking on Norway, which used proceeds from its oil resources to build a sovereign fund, which it invests in major projects such as infrastructure and affordable housing.

Global warming

Kili, in his recommendations during the just-concluded 2021 Devolution Conference, warned that uncertainty over the path of global warming also posed profound risks for the country’s pension plans with many providers today struggling to steer the transition to a lower-carbon future.

As a result, he wants the Retirement Benefits Authority (RBA) to work with industry stakeholders to develop a measurement framework for climate and other environmental, social and governance (ESG) -related risks in an effort to promote incentives that will allow pension funds to establish robust internal expertise on climate and other ESG-related considerations.

Greening a pension system ordinarily involves developing awareness and expertise within the pension funds regarding climate change, including drivers of vulnerability and exposure by sector and ESG considerations, such as critical metrics and regulatory guidelines by RBA.

The recommendations follow a previous plea to pension scheme trustees in Kenya by Capital Markets Authority (CMA) to diversify their investments in a bid to revitalise the sector that has been impacted negatively by the Covid-19 pandemic.

Speaking last month during a Sanlam Investments East Africa conference in Malindi, CMA chief executive Wykcliffe Shamiah urged the funds to retool their investment portfolio to maximise returns.