Co-operative Bank of Kenya has won a lucrative contract together with two other banks to keep more than Sh31.2 billion in annual pension contributions by public servants following the rollout of the fund on January 1 this year.
The Treasury picked the three banks as custodians of the billions of shillings collected from more than 350,000 civil servants, including police officers and teachers, who started contributing to their own pension saving scheme eight months ago.
CPF Financial Services Limited will be the fund administrator for the Public Service Superannuation Scheme (PSSS).
“The three banks (NCBA, Stanbic and Co-op) were picked from a competitive exercise and the process of contracting them is underway,” a senior source at the Treasury told the Business Daily without disclosing details such as bids scores or the amount that will be charged by the three banks to keep the pension assets.
All top banks officially registered as custodians of pension funds had tabled applications for the contract.
Civil servants started contributing to their pension savings scheme wit the first 7.5 percent deductions from their monthly pay in January —ending 12 years of postponement. The idea was mooted in 2008.
There are 11 officially registered custodians of pension funds in the country including; Bank of Africa, NCBA Bank, Equity Bank, I&M Bank, KCB Bank, (National Bank of Kenya) and Prime Bank.
Others are SBM Bank, Stanbic Bank, Standard Chartered Bank, and Co-operative Bank.
The custodian will be expected to hold pension funds and assets in safe custody on trust for the members and beneficiaries of the retirement savings account.
The Treasury says that the PSSS will initially have about 350,000 members, with a combined employer and employee monthly contribution projected at Sh2.6 billion.
The scheme covers respective eligible employees of the various agencies grouped as civil servants under the PSC (33,494), teachers under the TSC (127,000), and other personnel (99,053).
In addition to keeping all the schemes’ assets, the selected custodians will produce quarterly financial management reports on the fund.
The three financial institutions were allocated portfolios based on the scores in metrics such as experience in custodial services for pension schemes with a fund value of at least Sh10 billion.
The Treasury in decision to award the deal to NCBA, Co-op and Stanbic banks also considered their charges for the safe custody of the money as well as the interest to be earned.
A custodian will also carry out statistical analysis on the investments and returns on investments from pension funds in its custody and provide the data to the fund administrator.
Selected custodians will carry out the services for three years, which will be renewable on expiry by mutual agreement for a further period of three years depending on performance.
Civil servants, unlike workers in the private sector, have not been contributing to their pension, and their benefits were paid straight from taxes.
Previous attempts, from as far as 2008, to transition from a non-contributory scheme to a contributory one had been thwarted until last year when the Treasury gazetted the change.
The changes paved the way for the Treasury to set up governance structures for the scheme, including the appointment of the board of trustees and fund managers.
Civil servants were initially to contribute two percent of their monthly salary to the scheme in the first year, five percent in the second, and 7.5 percent from the third year.
But the staggering was shelved, with workers now contributing 7.5 percent of their pay in the first year, starting January 1, 2021.
Kenya’s pension time bomb has continued to tick despite the decision 10 years ago to raise the retirement age from 55 to 60 years.
A 2009 actuarial study commissioned by the government found that there was a contingent pension liability of Sh499 billion at the time. The liability nearly doubled to Sh990 billion in 2014.
The pension budget has increased over threefold in the last 10 years from Sh25 billion in 2008/09 to Sh86 billion in the 2018/19 financial year.
Earlier Treasury forecasts had shown the finance office will need Sh153 billion for pension payments in the year to June 2022.