Retirement Benefits Authority (RBA) has proposed radical reforms in the pensions industry that could see employees stopped from accessing their pension contributions before retirement altogether.
Acting RBA Chief Executive Nzomo Mutuku said once effected, the new proposal, which is currently under review, would enable pension funds to make long-term investments on their members’ benefits without being held back by constant withdrawals of those funds by employees who quit or change employers.
Currently, members of pension funds access up to 75 per cent of their benefits when they change employers.
“This kind of practice is eroding the ability of fund managers to make long-term investments and guarantee sure returns to their members,” said Mr Mutuku in an interview.
As things stand under the current RBA regulatory framework, it is estimated that due to the ability to get one’s pension any time they change jobs, the average income replacement, which refers to the fraction of the last salary that a retiree gets as pension every month, is only about 21 per cent.
The figure is way below the globally recommended 75 per cent.
Mr Mutuku argued that if employees were kept from accessing the money before retirement age, the amount the employee would get after attaining retirement age would be big enough for fund managers to invest in projects of their choice, a move that would in the long run help stimulate the economy.
He urged fund managers to take up the new alternative investments that had been certified by the regulator – public equity firms – wisely, saying any ill-informed investments would not be condoned.
“I have seen eight pension funds have already put money in a certain private equity firm. In total 0.02 per cent of industry assets have been invested with equity firms. I want to tell fund managers to take up these investments seriously since action will be taken against those who make bad investment decisions,” said Mr Mutuku.
Meanwhile, Industrialisation and Trade Cabinet Secretary Adan Mohamed has urged pension funds to stop putting all their money in Government bills and bonds and look for other investment opportunities likely to stimulate the economy.
“We have a big housing crisis and I would like to see pension funds put money in real estate to solve this crisis. You should not put all your funds in Government paper,” he said.
According to Nzomo, the pension industry holds Sh1 trillion in members’ assets.