High bar for pension trustees better for retirement payouts

Trustees are a key bridge between the benefits aspirations of pension scheme members, the strategy to meet these aspirations and the eventual retirement payout. Hence the composition and expertise of the board of trustees must be carefully considered to ensure that the pension scheme is effectively governed keeping the members’ ambitions and funds’ safety in mind.

The trustee selection process should be a rigorous one as they hold a major influence on the financial future of many families.  For an individual tasked with holding assets in the trust, overseeing their investment and organising proper fund administration, the bar must be set high for one to sit at the table.

However, a study done by the Retirement Benefits Authority (RBA) in 2016 titled ‘Review of Governance Practices of Retirement Benefits Schemes in Kenya’, found that majority of boards are voted in by members on the basis of popularity.

This is as opposed to merit and the value that they can add to the board. Consequently, the trustee’s ability to make investment decisions, follow trust deed stipulations, interpret financial results of the scheme, reconcile accounting records and utilise the information reported by the fund managers to inform investment decisions may be limited.

Some trustees are voted in by employees because they work in the same department, are friends or campaign rigorously. In such a case, members should not expect much from their pension schemes because a sloppily elected board lacks the proper knowledge and skills to grow their retirement savings. Members need to recognise the power that trustees hold in controlling their future financial security.

Expertise is paramount in this selection. Individual trustees should demonstrate their capability to serve in the role through education qualifications or work experience. Their governance skills can be improved through regular training as recommended by the RBA.

Still, members must also recognise that the strength of good governance lies in simplicity and discipline. The basic character of a nominee should not be overlooked.

Ideal appointees should prove to have ethical leadership so that they act in the best interest of the scheme. Trustees are expected to demonstrate honesty at all times while avoiding situations where their personal interests conflict with those of the scheme. 

Additionally, they must devote sufficient time to these responsibilities and exercise the highest degree of care, skill and diligence in discharging their duties.

Communication is another key consideration. It is a good way to ensure transparency, and accountability and build trust. It should be two-way. Can members communicate directly with the trustee? How does the trustee communicate with the members?

There must be good communication strategies and channels where the members can reasonably communicate or receive communication. 

If individual nominees fail to meet the cut, members and the sponsor may opt for corporate trustees as an alternative. The corporate trustees are considered to be deeply knowledgeable and professional. Additionally, they reduce a fund’s exposure to compliance risk. A corporate trustee ought to have relevant expertise in handling the different key areas of a pension scheme and an excellent track record of performance in managing previous investments.

In conclusion, all pension scheme trustees in Kenya ought to be certified by the Trustee Development Program Kenya (TPDK) to ensure they have the right skill set to meet the reasonable governance requirements of schemes.

However, the obligation to choose the right member-nominated trustees to drive retirement goals lies with the scheme’s members and it should not be taken lightly, after all, good trustees grow scheme benefits but great trustees change lives through effective and sustainable scheme governance.

—The writer is the CEO Enwealth Financial Services Ltd— swafubwa@enwealth.co.ke