Pension Industry takes a New Path following a Pertinent Amendment to the Retirement Benefits Act

Pension scheme administrators that have more than 40% of their paid-up capital owned by foreigners risk being deregistered. This follows a new amendment to the Retirement Benefits Act No.3 of 1997 (RBA), whose aim was to cap foreign ownership in a scheme administrator to a maximum of 40%.

This article sheds light on who an administrator is and highlights the impact of the new amendment to pension administrators that have more than 40% of their paid-up capital owned by foreigners. What does this mean to the existing pension funds and what exactly does the law aim to achieve?

A retirement benefits scheme is defined in section 2 of the RBA as a scheme or arrangement in which people are entitled to benefits determined by age, length of service or amount of earnings. The benefits are payable upon retirement, death, termination of service, or upon the occurrence of an event which is specified in a written law or other instrument. Notably, there are four types of pension plans in Kenya. They include: Public service pension fund; Occupational pension scheme; Individual pension plan; and Umbrella scheme.

There are three main consultant-professionals involved in the running of a pension scheme, namely: 

  • Fund Managers – they provide investment advice and invest the scheme funds.
  • Custodians – they provide safe custody of scheme assets and title documents. 
  • Administrators – they carry out administrative duties including keeping members records.

This article focuses on the administrator who is required to comply with the RBA and the Retirement (Administrators) regulations in performing administration services. Administrators’ roles and responsibilities are set out in Regulation 7, some of which include inter alia:

  • Liaising with the Revenue Authority for purposes of collecting domestic taxes and the scheme service providers for purposes of administration of the scheme;
  • Availing the required data to the service providers to enable preparation of statutory returns to the Retirement Benefits Authority;
  • Calculating and paying benefits to the members and their beneficiaries; and
  • Preparing the scheme budgets cashflows and liquidity requirements as may be required.


Requirements of being an administrator

An administrator must -

  • be a limited liability company incorporated under the Companies Act No. 17 of 2015 and whose main objective is to render administrative services;
  • have minimum paid up share capital as may, from time to time, be prescribed. Currently, an administrator must have at least sixty percent of its paid-up capital owned by Kenyan citizens unless the applicant is a bank or insurance company;
  • be capable of meeting the obligations to members and sponsors specified in scheme rules;
  • have the professional and technical capacity to perform its functions;
  • have never been an administrator of any scheme fund which has been either deregistered or wound up because of their fault;
  • have in its board of directors persons who are academically qualified in matters relating to administration of schemes;
  • have at least sixty percent of its paid-up share capital owned by Kenyan citizens unless the applicant is a bank or insurance company.    

The Schedule to the Statute Law (Miscellaneous Amendment) Act which was passed in 2014 provided for the insertion of a new section 25(B)(eb) to the RBA which, as mentioned earlier, caps foreign ownership of scheme administrators at 40%.  The date of Commencement for this provision was 8th December 2014. Consequently, a new subsection 25(B)(2) was introduced requiring a person registered as a scheme administrator to comply with the provisions relating to compliance with local and foreign shareholding within 12 months after the commencement date. However, companies which were affected by the provision asked for an extension of the grace period which ended in December 2017. Previously there was no such restriction as to foreign ownership of shareholding in an administrator.  The Hansard, which captures parliamentary proceedings for public records, for 13th August 2014, provides a commentary of Members of Parliament supporting the motion, which reflects that the intention of the amendments was to safeguard pensioners from theft of pension funds by a foreign controlled administrator.

In order for an Administrator to comply with the above it will have to restructure its shareholding. This can be done through ways outlined below bearing in mind the following: it should consider its Articles of Association, any Shareholders Agreements, the RBA and RBA Regulations, the Companies Act 2015 and the Capital Markets Act (CAP 485A) or any other relevant legislation.

  • Sale and Purchase of Shares

The foreign shareholders of a Company must elect either one or all of them to sell their shares. Kenyan shareholders will have the right to acquire the shares on a priority basis.

  • Allotment and Subscription of Additional Shares

The Company can increase its share capital. The foreign shareholders will need to waive their rights of pre-emption to subscribe for the newly issued shares thus diluting their shareholding and the subscription for shares can either be by the Kenyan shareholders or by a third party as an investor.

  • Listing on the Growth Enterprise Market Segment (GEMS)

A Company may also opt for listing on the Nairobi Stock Exchange (NSE) which will raise capital for the Company and dilute existing shares to meet the requirements of the RBA.

The Company can then offer to the public a certain percentage of the issued share capital in order to reduce the foreign shareholding.

  • Employee Share Ownership Plan (ESOP)

This will entail the establishment of a trust in which the Company will vest such percentage of its issued shares as shall dilute the existing shareholders and allow the Company to meet the local shareholding requirements under the Act.

Failure of an administrator to comply with the new requirements within the period may result in refusal of registration by the Authority and if already licensed, then deregistration under the Act.

In light of the above, one of Kenya’s largest pension funds administrator recently rebranded to Zamara. The change in name came in the wake of a change in the company’s ownership that cut foreign ownership in the firm to less than 40%.  Zamara is now majority owned by Kenyans.

In the UK scheme administrators are guided by the Finance Act. The Act provides that a person cannot be an administrator unless the person-;

  • is resident in the United Kingdom (UK) or another European Union member State or a non-member EEA State; “Non-member EEA State” means a State which is a contracting party to the European Economic Area Agreement, but which is not a member State;
  • has made the required declaration to the Inland Revenue; and
  • has made to an officer of the HM Revenue and Customs(HMRC) any other declarations which are required.

The scheme administrator could be an individual, several individuals, acting jointly and severally as administrators, a corporate body (such as a limited company) or a public-sector body. Where the scheme administrator is a corporate body, HMRC will consider whether the directors or those controlling the management of the body are fit and proper persons. A good example of a pension administrator in the UK is AON PLC located in London. It is a public limited Company listed in the New York Stock Exchange with a Market Capitalization of USD 34.00B. The Company has a long-standing experience with a 50-year track record and it administers pension schemes for over 200 clients in the UK.

The main difference in the administrator structure is that in Kenya an administrator must be a company but in the UK the administrator can be an individual or several individuals or a public-sector body. Nevertheless, it is worth noting that both Kenya and the UK have a little bias against foreign ownership by pension scheme administrators. While in Kenya ownership is restricted as explained earlier for any person who is not a Kenyan citizen, in the UK it is restricted to only persons who are resident in the UK or another state which is a member State or a contracting party to the EEA. Amazingly, this restriction has increased local participation in the ownership and control of pension administration companies in both countries. In Kenya, the change is expected to enhance the level of local accountability for decisions made by pension administrators.

Article written by Carole Ayugi, Managing Partner and Angela Kariuki, Pupil, MMAN Advocates.

Disclaimer: This article has been prepared for informational purposes only and is not legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Nothing on this article is intended to guaranty, warranty, or predict the outcome of a particular case and should not be construed as such a guaranty, warranty, or prediction. The authors are not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. Readers should take specific advice from a qualified professional when dealing with specific situations.

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