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10 March, 2024

According to the ACTSERV 2023 Retirement Benefits Schemes Investments Performance Survey, segregated retirement benefits schemes recorded a 3.1% return in 2023, up from the 2.3% recorded in 2022. The increase was largely supported by the performance of offshore investments made by the schemes which recorded a significant 10.6% gain to 18.0%, up from the 7.4% gain recorded in 2022, on the back of positive investor sentiment from higher valuations, and the shilling depreciation which made for better earnings prospects from foreign currencies. Additionally, in H1’2023, the retirement benefits schemes’ Assets under Management increased by 12.4% to Kshs 1.7 tn, from Kshs 1.5 tn in H1’2022 and 8.1% from the Kshs 1.6 tn recorded in December 2022. The growth of the assets can be attributed to the enhanced contributions to the mandatory scheme, NSSF, which began in earnest in February 2023 following the court of appeal ruling and the improved performance of the offshore assets arising from the exchange rate fluctuations. Despite the continued growth, Kenya is characterized by a low saving culture with research by the Federal Reserve Bank showing that only 14.2% of the adult population in the labor force save, including for their retirement in Retirement Benefits Schemes (RBSs). According to the World Bank, our Gross savings to GDP stands at just 16%, indicating that more still needs to be done to boost the savings numbers.

Notably, in February 2024, the Kenyan Supreme Court referred back to the court of appeal the case regarding the validity and constitutionality of the NSSF Act 2013. The Act, which increased the contribution rates from Kshs 400 to 12% of an employee’s monthly earnings, with a 6% deduction from the employee and an equivalent 6% deduction from the employer, was rendered unconstitutional, null, and void by the Employment and Labour Relations Court in September 2022. This decision was on the basis that, among others, the Act had the effect of making NSSF the sole provider of social and security Services. In February 2023, the Court of Appeal gave the nod on the implementation of the Act, saying that the Employment and Labour Relations Court had no jurisdiction to determine the petitions as filed. The new Act replaced the NSSF Act Cap 258 of 1965, which only covered workers in formal employment, with the new Act requiring employers to contribute 6.0% of employees’ gross earnings to NSSF while the employers match the contribution, with the maximum contribution capped at Kshs 2,160.0. This new regulation has played a role in the growth of the pension industry both in membership and AUM. Additionally, members will be able to access a bigger retirement package upon retirement through the Act.

We have been tracking the performance of Kenya’s Pension schemes with the most recent topicals being Progress of Kenya’s Pension Schemes-2022 done on August 2022 and Kenya Retirement Benefits Schemes FY’2021 Performance done on March 2022. This week, we shall focus on understanding Retirement Benefits Schemes and look into the historical and current state of retirement benefits schemes in Kenya with a key focus on 2023 and what can be done going forward. We shall also analyze other asset classes such as offshore investments that the schemes can tap into to achieve higher returns. Additionally, we shall look into factors and challenges influencing the growth of the RBSs in Kenya as well as the actionable steps that can be taken to improve the pension industry. We shall do this by looking into the following:

  1. Introduction to Retirement Benefits Schemes in Kenya,
  2. Historical and Current State of Retirement Benefits Schemes in Kenya,
  3. Factors Influencing the Growth of Retirement Benefits Scheme in Kenya
  4. Challenges that Have Hindered the Growth of Retirement Benefit Schemes, and,
  5. Recommendations on Enhancing the Performance of Retirement Benefit Schemes in Kenya;

Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.