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Climate change drives framework on greener pensions 

Retirement Benefits Authority urged to work with industry stakeholders to develop regulatory framework for climate and other ESG-related risks

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By Steve UMIDHA

Stakeholders in the pension market are racing against time to switch to sustainable pension plans or ‘green’ retirement benefit products amid concerns that the effects of climate change could hit retirees hardest.

Uncertainty over the path of global warming has posed profound risks to the country’s pension plans and many providers today are struggling to steer the transition to a lower –carbon future.

“As frontrunners in Kenya’s social security sector, we are taking comprehensive steps to mitigate our exposure to ESG risks as we pursue opportunities associated with sustainable investing,” said Hosea Kili, the Chief executive of CPF and Lap trust pension schemes.

As a result, Kili now wants the Retirement Benefits Authority (RBA) to work with industry stakeholders to develop a measurement framework for climate and other ESG-related risks in an effort to promote incentives to allow pension funds establish robust internal expertise on climate and other ESG-related considerations.

Greening a pension system ordinarily involves developing awareness and expertise within the pension funds regarding climate change, including drivers of vulnerability and exposure by sector and ESG considerations, such as critical metrics and regulatory guidelines by RBA.

Local Authorities Pensions Trust (LAPTRUST) was established as a pension scheme for employees of the then Local Government Authorities but ceased admitting new members in 2012.

In its place, a new Defined Contribution Scheme, Laptrust (Umbrella) Retirement Fund, was registered to meet the retirement needs of new employees within the defunct Local Authorities of Kenya, now devolved units.

As a result, the change saw slow remittance of contributions by the defunct local authorities in addition to the initial delay by the county governments to handle inherited liabilities from the local authorities.

Today, the County Pension Fund has over 160 sponsors comprising County governments and associated organizations as well as independent organizations which join the umbrella fund for their employees’ benefits.

The regulator has also been advised to consider expanding social security coverage by making pension contributions mandatory for all Kenyans.

In his presentation, CPF’s Kili says an establishment of a universal fund would be ideal in allocating a percentage of the national budget to go towards the fund for universal pension and medical coverage.

“This can be achieved by introducing a pension levy on mandatory goods and services to realize mandatory State social security. It could also look at a levy on vital goods such as airtime, a small portion of which can be built over time,” added Kili.

The proposed universal fund, he said should be implemented as a flagship project under Vision 2030 while benchmarking on Norway, which used proceeds from its oil resources to build a sovereign fund, which it invests in major projects such as infrastructure, affordable housing.

This follows a previous plea to pension scheme trustees in Kenya by the Capital Markets Authority (CMA) to diversify their investments in a bid to revitalize the sector that has been impacted negatively by the Covid-19 pandemic.

Speaking early this year Sanlam Investments East Africa conference in Malindi, Capital Markets Authority Chief executive Wykcliffe Shamiah urged the funds to retool their investment portfolio to maximize returns.

“I urge the industry stakeholders to come up with products or innovations, attractive to our youth so that we prepare them to prefer capital markets as an investment option offering plausible returns on investments,” Shamiah said.

The Kenyan pension fund sector is ranked the biggest in the region with over Sh1.4 trillion worth of savings invested in various asset classes.

Last year, pensions recorded increased withdrawals and surrenders due to revenue crunch and Covid-19 induced job losses.

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