Pension schemes with assets of less than Sh500 million are expected to merge under proposed industry reforms geared at improving the efficiency and financial strength of players in the sector.
The Association of Retirement Benefits Schemes (ARBS) has proposed to the Retirement Benefits Authority (RBA) that small pension schemes be amalgamated into umbrella units.
An umbrella pension scheme is an arrangement whereby multiple employers allow a common administrator to run the retirement benefits plan of their respective employees. This strategy is particularly common among small firms that lack sufficient resources and expertise to set up their own pension schemes.
The industry lobby argues that smaller pension schemes have not benefited from the economies of scale, including savings from the bulk buying of securities and other financial instruments, expenses such as administrative platforms and member education.
Small pension schemes are also seen as inefficient in asset diversification due to their limited assets under management (AUM).
“We have so many registered schemes and the cost to run them is very high. On average, a scheme with an AUM of Sh500 million can stand on its own. For schemes with a lower AUM, I think it's only fair we consolidate,” Enwealth Financial Services Limited chief executive officer Simon Wafubwa said.
“We are proposing that schemes with an AUM less than Sh500 million be put in an umbrella.”
According to estimates from ARBS, no more than 50 pension schemes have an AUM above Sh1 billion.
RBA data shows that there were 1,032 pension schemes as at December 2024, including 56 umbrella schemes with a combined AUM of Sh185 billion.
“It is not easy to diversify with a fund of Sh50 million,” Mr Wafubwa said.
“This is the moment to let go of our selfish interest for the greater good of the sector,” he added.
Pension schemes are required to be licensed and registered with the RBA and must maintain a minimum of Sh10 million in capital, including unimpaired reserves for entities operating as managers or administrators.
Custodians, meanwhile, are required to keep a higher Sh250 million as the minimum paid-up share capital.
Assets under management in the pension industry stood at Sh2.25 trillion as at December 2024, driven by higher contributions to the National Social Security Fund. The bulk of the industry’s assets remain concentrated in traditional asset classes, including government securities at 46 percent, quoted equities at 42 percent and guaranteed funds at 22 percent.
