Although Kenya’s pensions sector has enjoyed strong growth in recent years, the majority of workers are still not planning for retirement. Octagon Pension Services is working to address this
The value of the Kenyan pension industry is projected to hit $10bn in 2016, according to industry regulator the Retirements Benefits Authority (RBA). The rapid growth of the sector can be attributed to an increased awareness of the need to save for retirement, the bolstered role of the RBA, and trustees’ enhanced awareness of their roles and responsibilities, among other factors.
Despite the industry’s astronomical growth in the past decade, the majority of Kenyan workers are not saving for retirement, especially those in the informal sector. Data from the RBA shows only 20 percent of the workforce is saving for retirement through registered pension providers.
The country’s National Social Security Fund has the highest proportion of membership, at 67 percent, with an estimated membership of 800,000, followed by the civil service pension scheme at 22 percent. The occupational retirement benefits schemes and individual retirement benefits schemes currently have around 1,350 members, accounting for about 11 percent of total scheme membership in the country.
Furthermore, the Savings and Monitor Report, which was conducted by financial services firm Old Mutual on the Kenyan pension industry, showed only 12 percent of Kenyans are financially ready for retirement, while even those who are saving with retirement benefit schemes do not know the value of their savings.
A ticking clock
According to Kenya’s Public Service Commission (PSC), the body responsible for the provision, management and development of human resources in the Kenyan civil service and local authorities, Kenya is facing a pensions time bomb, with nearly a third of the civil service set to retire in the next decade. The PSC says 32 percent of civil servants are above the age of 50, meaning about 60,000 civil servants will retire before 2025.
Kenya is facing a pension time bomb, with nearly a third of the civil service set to retire in the next decade
Leading regional financial services provider Octagon Pension Services has been hailed as an industry leader in repositioning the retirement benefits industry in Kenya. The company has a diversified client base, including individuals, non-profit organisations, and public and private sector organisations.
In 2008, the company incorporated Octagon Trustee Services to meet the needs of organisations or schemes that require independent and professional corporate trustee services and, more importantly, to oversee settlement of trust funds for children who are left behind by deceased members of schemes. In 2010, Octagon acquired the majority shareholding in an insurance brokerage company that was subsequently branded Octagon Insurance Brokers.
The company also provides training and property management services for pension schemes to its clientele. Following its mantra of ‘service with passion’, the firm has used innovation and exemplary service to bolster the inclusion of many Kenyans into the retirement savings sphere.
“Octagon has grown its client base from handling 3,100 scheme members in 2007, with a fund portfolio of $70m, to more than 41,000 members currently, whose combined portfolio stands at $400m in assets”, said Fred Waswa, Managing Director of Octagon Pension Services. “This is a vote of confidence in the innovative product offering, stability and excellent customer service offered by the company.”
Fuelling Octagon’s growth is its experienced team of specialists in the financial services sector. The firm began its operations with three members of staff in 2007, and by 2015 it had grown to 40 staff, whose combined experience in pension management spans over 200 years. According to Waswa: “Octagon Africa’s philosophy is premised on building long-term beneficial relationships with clients, in providing a service beyond expectations that is built on expertise and responsiveness to clients’ needs. We care and respond to clients’ needs.”
With its innovative product offering, Octagon has brought into the fold individuals and institutions traditional pension scheme providers tend to ignore. These include SMEs, savings and credit cooperative societies, and small non-profit organisations including self-help groups and community-based organisations.
For corporate organisations, the firm provides corporate scheme administration and scheme accounting, as well as corporate trustee services. Octagon also acts as a corporate principal officer for its clientele while undertaking pension settlement trust services, as well as providing other scheme advisory services.
The firm has an umbrella pension scheme product designed for SMEs that enrol members to a retirement benefit schemes without having to set up a standalone scheme that requires a lot of regulatory compliance. The scheme simultaneously reduces the usual costs for setting up such a system. Octagon Umbrella Retirement Scheme gives these organisations an opportunity to pool together into one scheme, with each organisation having the flexibility to design their trust rules like any occupational scheme, while having shared service providers and being governed by a single trust deed.
The firm’s income drawdown product fund has been designed to provide individuals and members of retirement schemes with the option to access their benefits as a regular income through an investment fund upon retirement. A member simply transfers the benefits into the fund and then withdraws regular payments at an agreed frequency, and the balance is invested to earn extra income.
Octagon believes in sharing knowledge and experience, and has been instrumental in training trustees and members of pension schemes to deliver services in the retirement benefits sector. Having trained over 4,500 clients in the last eight years, it has developed training programmes for trustees, CEOs, CFOs, human resources managers and secretarial staff associated with retirement benefits arrangements. Octagon also runs bespoke programmes to address scheme-specific deficiencies, and open programmes on certain areas where trustees need their skills developing. The firm upgraded its training services department in 2015 to become a functional subsidiary.
Octagon also incorporated Octagon Realtors as a subsidiary in 2015, to offer support to a growing number of pension schemes with property investments, providing professional, independent services on property management and advisory.
Ready for the future
In line with its innovative philosophy, the firm recently launched the Octagon Pension Administration System, which has revolutionised pension administration in Kenya by easing a wide range of functions such as data maintenance, member benefits calculation, online services for members and trustees, reporting and payments – all with maximum flexibility, and at a minimal cost. A number of leading firms in the region have already adopted the system and have rated it highly.
Octagon has a solid management and governance system: its top five managers have a combined global pension experience of over 100 years, and its board of directors is composed of thought leaders in east Africa’s accounting, legal and marketing space. Octagon’s chairman heads up the largest law firm in east Africa, and also one of the oldest in the region.
“Octagon sits on a solid foundation of sound management and governance. We have experienced managers and a board of directors who steer the organisation. We are a stable pension services provider”, said Waswa. “We are true believers in, and practitioners of, good corporate governance – this is critical in the financial services sector, where trust and stability are the sector’s engines.”
Octagon runs a campaign dubbed ‘futuready’, which targets youth and the working class, helping them to be ready for the future. The firm now aims to expand the campaign to target the vibrant African diaspora market across the world.
Furthermore, individual pension schemes have shown potential for growth in Kenya in the last four years. The sector’s asset base has grown by 150 percent over the past four years, reaching $200m after registering 100,000 new savers over that period. This is an area Octagon wants to target, as it promises to deepen its financial inclusion agenda. Individual schemes mostly target Kenyans in the informal sector, including those in SMEs, an area which has previously been sidelined in terms of pension savings.
This year, the firm is also opening the Institute of Pension Management, which will exclusively target pension training in East Africa. Once established, the college will bolster expertise in the region, as it will attract students from as far as east, central and southern Africa.
According to Waswa: “This is our contribution to the manpower revolution in Africa. We want to see many professionals in the region driving innovation in the pension industry in several African countries. This college, once established, will help us realise this dream. As we grow, we are mindful of the environment that we operate in.
“In this regard, we have a number of corporate social responsibility initiatives, as well as sustainable business practices that we have adopted. This way, we can grow without compromising the survival of future generations. Our most satisfying initiative has got to be our university and college outreach programme, where we want young people to start saving for retirement immediately after they get employed.”
In line with its pan-African agenda, Octagon has its sights trained on covering the whole of Africa. The firm has an established presence in Uganda and Zambia, and is targeting Rwanda by 2017 as it seeks to replicate its success in Kenya, especially among the SMEs the big players don’t prioritise.
Although data on the actual size and progression of Africa’s pension industry is lacking, the industry is nonetheless showing strong growth, according to Renaissance Capital. The firm estimates the assets of Africa’s six largest pension fund managers could increase to $622bn by 2020, and then reach a figure of $7.3trn by 2050.