The Business Daily caught up with the Retirement Benefits Authority (RBA) CEO Charles Machira ahead of public participation for proposals moved by the regulator to amend the Retirement Benefits Act and other regulations.
Only 38 percent of schemes have clearance to handle the National Social Security Fund (NSSF) deductions, why has there been a delay in approvals?
I can honestly tell you that we have no backlog. What happened is at some point when the Supreme Court made a determination on the matter of the NSSF Act, there was a lull in terms of interpretation of the implications of the law. We also took a break between February and September last year, which created a small backlog.
But anybody who applied for a contracting out certificate in January has it now and we are now clearing up applications from February. We should be there in a month.
Some pension schemes feel the NSSF has cannibalised their assets as employers shift deductions made to the schemes to the State-backed pension fund. What can the RBA do to safeguard private schemes?
I would not want to use the word cannibalise. The NSSF Act is supposed to increase the number of people saving for retirement and on the other side increase the pool of savings.
If we allowed for seamless contracting out, schemes and employers would be allowed to net off whatever would have gone to the NSSF to their own occupational arrangement, which would be a contribution-neutral position.
We are working closely with stakeholders, including the NSSF, to ensure that the contracting out process is cleared.
From where I sit, collectively as stakeholders in the industry just want to ensure that people are saving more, and we have more adequate retirement incomes, and this will only happen if we have more savings, including the contributions to the NSSF.
Last year, you allowed pension schemes to ignore fair value changes to government securities as bond prices fell, does this directive still stand?
It’s a permanent move. It’s a valuation issue but it has created a lot of distortion in the industry.
It’s more of a practice than a legal issue. I will give you an example—most of the segregated funds in the last financial year are giving returns higher than 12 percent, if that amendment was not there, that returns could be below two percent.
On new proposals, the RBA wants the Kenya Revenue Authority to be given powers to collect unremitted pension benefits while you, as the regulator, want to limit early access to retirement benefits, how much of these proposals should we expect to see come to life?
One of the key proposals is locking in retirement benefits for members who are below age 50. Under the Income Tax Act, there is a provision for early retirement at 50, and that’s what we adopted, it could have been 45 or less.
Coming back to the issue, we asked ourselves—why should people access money when they are economically active? You save for retirement so that when you are not economically active you have a sustainable lifestyle commensurate with your working life.
The only thing we do not want people to confuse even as we say we are locking in, while the desire is to lock in everything at 100 percent, we also appreciate we are in a dynamic environment. Our initial proportion is to enhance the lock-in amount first to 50 percent then to a percentage we will discuss for 2026, which could be 60 percent, in 2027 we will still agree on whether to increase it to 70 percent.
The majority of people who have accessed their retirement benefits early have stories of regret.
When you access the money, you also lose the compounding effect that you could have had. Personally, and as RBA, it’s clear that the time to reduce the amount of money one can access is now. It’s still your money at the end of the day, nobody is taking away that right.
All we are saying is that in the latter years of your life, you will still need resources when you cannot work.
We are also thinking that instead of allowing people to access the cash in between jobs when they don’t have resources, maybe we can ensure funds accessed are directed towards specific courses such as paying school fees, mortgages or medical bills.
The industry is thinking about bundling products to ensure that pension benefits are not just cash.
Why have trustees failed in their duty to force employers to remit pension deductions?
We have arrears of Sh57 billion, which is just the principal amount. If you add the lost investment income, with an average return of 12 percent last year, you are talking about a further Sh12 billion lost, which would have been money going to members’ accounts.
When the initial laws were designed, it was not expected that employers would deduct and fail to remit. We put a lot of emphasis on trustees pushing compliance, but we forget trustees are mostly appointees of the employers, including CEOs and directors. There is an inefficiency in the collection by virtue of how the board of trustees is structured in law.
Why should the KRA come in?
You have an organisation, and you show you have deducted pension contributions but failed to remit, this is purely criminal. The law as it now has not been able to cure that, particularly for quasi-government pension schemes.
We want to delegate the agency powers of the Kenya Revenue Authority to collect on behalf of the board of trustees and not the RBA because the taxman has better enforcement powers to even access those employer accounts.
