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PENSION REFORM

FOR KENYA

GROUP PRESENTATION

AT THE WORLD BANK INSTITUTE

ON 17TH NOVEMBER 2006

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GROUP MEMBERS1. K ARANJ A K ABAGE1. K ARANJ A K ABAGE KENYAKENYA CHAIRMANCHAIRMAN

2. MARIS WANYERA2. MARIS WANYERA UGANDAUGANDA

3. CHARLES MUHOOZI3. CHARLES MUHOOZI UGANDAUGANDA

4. RACHEL LUM BASYO4. RACHEL LUM BASYO KENYAKENYA

5. SAMU EL MPIIMA5. SAMUEL MPIIMA UGANDAUGANDA

6. ZIA6. ZIA --URUR--RAHMANRAHMAN AFGHANISTANAFGHANISTAN

7. REGINAL THOMAS7. REGINAL THOMAS -- ST VINCENT & THEST VINCENT & THE

GRENADINESGRENADINES

8. DAVI D DONDE8. DAVI D DONDE -- KENYAKENYA

9. ANN E MUGO9. ANN E MUGO -- KENYAKENYA

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CONTENT1.1. INTRODUCTIONINTRODUCTION

2.2. K ENYA RETIREMENT B ENEFITS SYSTEM (KRB)K ENYA RETIREMENT B ENEFITS SYSTEM (KRB)

-- CURRENT STA TUSCURRENT STA TUS

STRUCTURE

FUNDS

INVESTMENTS

CSPS EXPENDITURE

3.3. PROPOSED REFORMPROPOSED REFORM

CIVI L SERVICE PENSION SCHEME (CSPS

NATIONAL SOCIAL SECURITY FUND (NSSF)VOLUNTARY SCHEMES - OCCUPATIONAL

- INDIVIDUAL

4TH PILLAR FAMILY SUPPORT

4. WAY FORWARD

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INTRODUCTION1.1. POPULATIONPOPULATION = 35 MILLION= 35 MILLION

2. GDP = $17.9 BILLION

3. GDP GROWTH = 5.8% (2005) PROJ 6% (2006)

4. 21% COVERAGE - Formal Sector employees5. NORMA L RETIREM ENT AGE: 55 years6. ASSETS MANAGED - 23% GDP [WBI]7. REGULATION - Retirement Benefits

Authority (RBA)

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K RB SYSTEM STRUCTURECivilServiceScheme

NationalSocialSecurityFund

OccupationalSchemes Voluntary

IndividualSchemes -Voluntary

LegalStructure

Act of Parliament(1946)

Act of Parliament(1965)

Trust Deed & Rules Trust Deed & Rules

Membership All civil servants,teachers, armedforces etc.

formal sectorworkers incompanies with 5+employees

formal private sectorworkers in companiesthat have schemes

individualsformal/informal sectorjoin voluntarily

Funding Non-funded DB Funded ProvidentFund (DC) Funded (DB, DC &Provident Funds) Funded (DC)

Regulation(RBA ACT 1997)

Exempt from

RBA

Subject to RBA;

Partially compliant

Subject to RBA Subject to RBA

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K RB SYSTEM

COVERAGE & FUND DISTBN

Occupational

Retirement

Benefits Schemes

61%

National Social

Security Fund

38%

Civil Service

Pension Scheme

0%

Individual

Retirement

Benefits Schemes

1%

KRB COVERAGE

NSSF

48%

CSPS27%

OCCUP

24%

INDIV1%

NSSF

CSPS

OCCUP

INDIV

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K RB INVESTMENTSNSSF INVESTMENT PORTFOLIO

0

6 59

0

72

0

7

01

5

100

30

15

5

7070

30 30

5

0

20

40

60

80

100

120

Cash Fixed

Deposit

Fixed Income Governemnt

Sec

Quoted

Equities

Unquoted

Equities

Offshore Immovable

Property

Guaranteed

Funds

Other

as % of total Maximum %

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K RB INVESTMENTS

OCCUPATIOAL & INDIV.

4 7 6

48

74

914

01

5

100

30

15

5

7070

30 30

5

0

20

40

60

80

100

120

Cash Fixed

Deposit

Fixed Income Governemnt

Sec

Quoted

Equities

Unquoted

Equities

Offshore Immovable

Property

Guaranteed

Funds

Other

as % of total Maximum %

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K RB SYSTEM

CSPS EXPENDITURE TRENDPENSION EXPENDITURE TREND - Appendix I

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

1994/95

1995/96

1996/97

1997/98

1998/99

1999/2000

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

Year

KenyaShs

.Billion

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1 st PILLAR

CIVIL SERVICE PENSION SCHEME

o CURRENT SCHEME:

DB 2.5% accrual rate

Non contributory

Current Expenditure $260m (2006/07)

Retirement Age: 55 Female & Male

Vesting 10 years and age 50+

Minimum Guaranteed Pension $27 p.m.

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1 st PILLAR

CIVIL SERVICE PENSION SCHEME

oPROPOSED REFORMS:

Employee Contributions 7.5% - $100m p.a.Government Contributions 12.5% ($170m - Notional)

Accrual Rate 2.5% (unchanged)

Retirement Age: 60 Female & Male

Vesting 5 years

Partial Portability Members contb only

Admin/Investment As per RBA Act & Regulations- Administration Public- Investment Private- Custody Private

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2 nd PILLAR - NSSF

oCURRENT SCHEME:

oFund Size - Approx. $1 billionoMembership:

Registered members 2.9 million (Only 0.8 million active)Registered Employers 59,025 (only 14,638 active)

oContributions:Employee 5% of salary - maximum of US$ 6 pmEmployer 5% of salary - maximum of US$ 6 pm

oBenefits:Lumpsum at 55 yrs,withdrawal at 50 yrsOther - invalidity, survivors, emigration etc.

oReturns:

Last five years - 2.5%

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2 nd PILLAR - NSSF

oPROPOSED REFORMS

o Membership: Increase coverage by:Including all employers remove 5 employees minimumIncluding the informal sector & self employed

oContributions: Increase Contributions by:Raising threshold gradually From $53 to $133Allow voluntary contributions above the 5% and $133 levels

oBenefits: Introduce DC pensionMinimum period for pension 15 yearsThose below 15 years entitled to a lumpsumAnnuity or programmed withdrawal

oReturns:

Improve: as per Fund performance

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3 rd PILLAR

VOLUNTARY SCHEMES

oCURRENT STRUCTURE:

oOccupational RB SchemesApprox. 1344 schemesApprox. $2 billion15% CoverageMixed DB/DC but mostly DCUnderfunded Parastatal schemes - $693m LiabilityIntense supervision by RBA since 2001

oIndividual RB Schemes15 schemes informal sector/self employed

0.2% CoverageDC schemesMainly administered by Insurance companiesIntense supervision by RBA since 2001

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3 rd PILLAR

VOLUNTARY SCHEMES

oPROPOSED REFORMS

Introduce risk-based supervision

Full funding for Parastatal Schemes

Improve Governance of Parastatal Schemes- comply with RBA Regulation

Compulsory Occupational & Individualschemes

t h

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4 t h PILLAR

EXTENDED FAMILY SOCIAL

WELFARE PROGRAM & HOMEOWNERSHIP PROGRAMS

oCURRENT STRUCTURE:

Culture of family dependency

Tax exemption on Homeownership Programs

oPROPOSED REFORMS

Tax exemption on contributions to extended family Improve tax exemption on Homeownership

Program

SUMMARY OF REFORMS

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SUMMARY OF REFORMS

PROPOSED WAY FORWARDCivilService

Scheme

NationalSocial

SecurityFund

VoluntarySchemes

4th Pillar

LegalStructure

New Act Enact Bill alreadybefore Parliament

RBA Act requiremandatory element

Tax recognition offamily support

ParametricReforms

Contributions7.5%/12.5% E/GRetm. Age: 60yrVesting 5 yr

PartialPortabilityAdmin/Investm.

Increase coverage

Increasecontributions

Retm Age: 60 yr

Introduce pension

Min pens.15 yr

Compulsion None

FundingReform

NDB;

Future NDC

DC Full Funding ofParastatal schemes

Tax incentives

Regulation Subject to RBA Subject to RBA Risk-based RBASupervision

Tax supervision

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REFORM CHALLENGES -

oDeepen RB System Structure by

introduction of Zero PillarWhen budget available 1 to 2% GDPCover those over 65 yearsGuaranteed Minimum Pension

oPolitical Constraints

Age 60Constitutional restrictions to reformGovt. actual contributions from tax

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PENSION REFORMFOR KENYA

THANK YOU ALL