Put in place good governance of pension funds

Personal finance

Put in place good governance of pension funds


The value of pension fund assets has increased significantly over the past two decades, currently reaching Sh1.54 trillion from Sh44 billion in 2000. This growth assumes that the typical scheme has moved from placing all of its investments in public securities to active investment management.

Additionally, the volume and complexity of compliance and the regulatory framework has increased and has had a significant impact on operational efficiency and costs, especially for smaller plans.

In addition, over the years, more and more schemes have moved to defined contribution schemes and as such, members – not employers – bear the risk of pension fund adequacy in retirement. .

These changes have led to increased pressure for better governance to protect members’ savings and have placed greater demands on the expertise, accountability and involvement of trustees responsible for the governance of pension plans.

To enhance accountability, transparency, operational efficiency and regulatory compliance, the Retirement Benefits Authority (RBA) has set out best practices that schemes can use to build their own governance structure.

Alongside general corporate governance principles such as inclusiveness, accountability and transparency, special attention has been given to auditing, board assessment, training and induction. .

In my view, there is no single governance arrangement. Good governance is the extent to which a plan aligns the activities of the board of directors with the interests of the members.

It is about placing motivated, competent and competent administrators and having the right structures and processes to enable effective and timely decisions and risk management to guide the objectives of the plan.

First, the board should be made up of trustees with the necessary expertise and knowledge of the pension industry, who also demonstrate integrity and ethics.

At least one member must have a financial qualification. It should operate independently but encouraged to interact dynamically. If a board is to truly fulfill its mission – to monitor performance and connect with the wider world – it must become a strong team – a team whose members know how to uncover the truth, challenge each other and even fight now and then.

The issue of board governance is continually evolving and there is always something new to learn about it.

The transformation of social and demographic space driven by ICT innovations continues to pose a serious need to broaden the understanding of the pension sector.

Although directors bring with them some familiarity with governance practices, ongoing education and induction are required to maintain the right level of expertise in the boardroom.

Regardless of a board member’s experience, it is unrealistic to assume that anyone has a full understanding of governance. For example, they must be on track with emerging issues that affect all organizations like cybersecurity, pandemic, social, economic and political issues.

In fact, the RBA Good Governance Guidelines (2018) require, by policy, trustees to constantly seek to improve their knowledge and skills through training. Between meeting protocols, board reports, problem solving, and strategizing for the future, board members typically have a full plate and education can often fall on the back burner. .

While all of these things are important, they do not preclude the board from ensuring that all board members have the knowledge and leadership skills necessary to reliably manage the pension plan.

The chairman of the board could make or break the organization.

A good chairman provides effective leadership not for the system but for the board, enabling it to function as the highest decision-making body in the organization.

Experienced chairs invite board members to address their concerns, provide them with a supportive environment, and encourage them to stay motivated and productive. They are authoritative and humble, committed and detached, have a helicopter view but land it occasionally to get to know the landscape and the troops.

Finally, associate the board of directors with the members of the pension plan through annual general meetings (AGM).

These meetings promote good governance by ensuring that members exercise their oversight, questioning and voting rights at the meeting to ensure that the trustees act in the best interests of the plan.

It gives members the opportunity to receive copies of the plan’s financial records, review the past year’s tax documents and ask questions about the directions the administrators wish to take in the future. It is a means of integrating the value of member voice into the overall plan strategy.

In addition, the AGM gives its members, the sponsor and the board a broad overview of the current directions of the organization, its financial health and confirms its purpose.

Dolores W. Simon