Retirement Benefits Authority

Question 1a) Discuss the role/functions of the Retirement Benefits Authority in regulating retirement benefits.

The functions of the Retirement Benefits Authority (RBA) include:

To regulate and supervise the establishment and management of retirement benefits schemes.

To protect the interest of members and sponsors of retirement benefit schemes.

To promote the development of the retirement benefits industry.

To advise the Minister for Finance on the national policy to be followed with regard to the retirement benefits sector.

To implement all government policies relating to it, i.e. the Retirement Benefits Authority.

Perform any other functions conferred on it by the Retirement Benefits Authority Act or by any other written law.

Ensure schemes come into compliance with the Act.

Receiving and addressing membersÐ'ÐŽÐ'¦ complaints with regard to their schemes or benefits.

General education campaign using print, radio, TV, newsletter, website. e. t. c.

Specific education e. g Trustee Training Seminars.

Compiling statistics and carrying out research on relevant issues in the industry.

Making policy recommendations to the government.

Question 1b) Explain the main types of pension schemes in operation in Kenya giving the advantages and disadvantages of each.

The main types of pension schemes are;

Ð'„X Occupational Pension Scheme

Ð'„X Group Personal Pension Scheme

Ð'„X Stakeholder Pension Scheme

Occupational Pension Scheme

This scheme is set up by the employer for the employees and run by the trustees. The employer must contribute towards the scheme.

In salary-related schemes, administration costs can be paid by the pension fund or by way of an annual management charge. The scheme actuary determines how much the employer needs to contribute.

In money-purchase schemes, the employer pays a fixed amount determined by the scheme rules, with the fund paying an annual management charge for any administration costs not covered by these conditions.

Advantages

Ð'„X Additional benefits may be provided e. g. paying pension to the partner if the member dies.

Ð'„X A well established scheme can help in attracting, retaining and motivating high-calibre staff.

Ð'„X Flexibility- can be tailored and controlled according to the employerÐ'ÐŽÐ'¦s wish within the legislative boundaries.

Disadvantages

Ð'„X Not easily transferable.

Ð'„X Costly to the employer providing occupational schemes which are governed by complex legislation.

Group Personal Pension Scheme

This a scheme where regular payments are made but can be stopped at any time e. g. career break and resumed when in a position to do so. Administration costs are deducted from the individualÐ'ÐŽÐ'¦s pension fund. The total employee/employer contributions must be within permitted contribution levels.

Advantages

Ð'„X Contributions are optional for employers.

Ð'„X ItÐ'ÐŽÐ'¦s transferable.

Ð'„X There is tax relief for approved schemes.

Ð'„X Can be tailored to the individual employer.

Ð'„X There is the option to take a lump sum at retirement.

Ð'„X The scheme provider is responsible for the administration of the scheme, not the employee.

Disadvantages

Ð'„X There may be charges for any changes made e. g. if an employee stops making contributions or decides to switch pension schemes.

Ð'„X Employees have to fund the whole of the pension by themselves if there is no employer contribution.

Stakeholder Pension Scheme

This schemeÐ'ÐŽÐ'¦s annual charges are at a certain percentage of the total fund. A member, after paying the minimum contribution, can transfer in and out of the scheme or stop payments without a penalty. Employers must record contributions made and administration costs are deducted from the pension fund. The employer must offer

payroll deduction facility. Total employee/employer contributions must be within permitted contribution levels.

Advantages

Ð'„X Easy to understand.

Ð'„X It is flexible.

Ð'„X It is transferable.

Ð'„X Option to take a lump sum at retirement.

Ð'„X The scheme provider is responsible for the administration of the scheme, not the employer.

Ð'„X The employer does not have to contribute.

Disadvantage

Ð'„X Employees have to fund the scheme by themselves if there is no employer contribution.

Question 1c) Some employees have had problems accessing