CPF: Fulfilling Lives Through Unrivalled Financial Management Services

With a legacy spanning 90 years in pension management, a branch network running across all the 47 counties in Kenya and services in the larger East African region, CPF Group boasts of innovative retirement, financial, infrastructural and consulting solutions through partnerships that have over the years safeguarded the interests of all its stakeholders. Corporate Watch Magazine had a sit down with CPF Group Managing Director Hosea Kili, OGW in a bid to demystify the myths around pension plans, investments, social security and the future of CPF.

How do you define “retired”?
At CPF, we say one is “retired” once they withdraw from active working life. The concept of retirement developed due to a combination of increased life spans, growing popularity of pension plans in certain sectors, and the onset of government-sponsored benefits with the creation of Social Security. Prior to such programs, people practically worked their entire lives. If they became unable to work, their family was expected to provide for them. The situation has since changed and in order for one to achieve a fulfilled retirement, they need to plan ahead and save accordingly.

What are the key aspects of good pension plan governance/administration?
Good governance and administration are the bedrock of a well-run pension fund. There is a clear link between good governance and the fund performance so it is an essential part of effective scheme management. Key aspects involve having motivated, knowledgeable and skilled people running the pension fund. Additionally, the right structures and processes ought to be in place to enable effective, timely decisions and risk management.

Do you invest on behalf of your members? If yes, how do you monitor the performance of member-directed investments?
Investment is done through appointed investment managers. It is important to note that pension fund assets have important differences compared to other forms of collective investments. Pension funds have the objective of providing income replacement in retirement whereas other forms of collective investments are primarily concerned with short-term wealth maximization.

The differences in objectives result in different time frames over which performance should be considered and different attitudes to risk. However, despite these distinctions, the performance measures that are typically applied to pension funds are identical to those used to evaluate the performance of other types of investments.

What risk-testing framework do you have in place to ensure that investments you do for your clients’ pension funds and the related financial reporting matches your clients expected returns?
Inevitably, Pension Funds’ activities expose them to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Our aim is to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Funds’ financial performance.

To this end, our risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. At CPF we regularly review our risk management policies and systems to reflect changes in markets, products and emerging best practice. The Board of Directors in conjunction with management identifies, evaluates and addresses financial risks in close cooperation with the company’s operating units. The most important types of risks for the company are credit, liquidity and market risks.

We have also put in place an Audit & Risk, & Governance Committee that is mandated to raise the standards of corporate governance by reviewing the quality and effectiveness of the internal control systems, the internal and external audit functions and quality financial reporting. This is in addition to advising the Board on best practices, and monitoring management’s compliance with relevant legislation, regulations and guidelines as well as the Company’s laid down policies and procedures. The committee has direct access to the Audit function.

In an article you published in your company’s blog title “Why we need to make social security a Vision 2030 Flagship Project” you underscore the importance of social security services in Kenya. What are the social and financial implications of having a universal social security program?
We at CPF have been big proponents and advocates for Universal social security in Kenya. This is because we believe in universal social protection as a key element of national strategies to promote human development, political stability, and inclusive growth.

In fact, evidence shows that, in addition to reducing poverty and inequality, well-designed social protection systems with adequate benefits contribute to inclusive growth by increasing productivity and employability by way of enhancing human capital, boosting domestic consumption and demand, and facilitating structural transformation of the economy.

What pension reforms do you think are needed in Kenya to make the uptake of retirement plans successful?
The greatest challenge when it comes to social protection is the fact that millions of unorganized and informal sector workers in Kenya are excluded from formal pension and social security systems. The Question then becomes, how can we bring them into the fold?

At CPF, we propose setting up a Universal Pension Fund leveraging the Pay As You Save (PAYS) model. This means that the working population will contribute (a very small amount, as a percentage of certain classes of consumables such as airtime costs) and pension benefit will be payable to any persons aged over 65 years of age; irrespective of their previous employment history or social economic status. Similar to the road Maintenance Fuel levy, we propose that a social protection levy be imposed on certain classes of goods; which levy will go towards funding the provision of social security for all citizens and qualified residents aged 65 years and above.

This fund will also be supplemented by a Sovereign Wealth Fund, to be funded by a share of the national natural resources such as oil among others. This will ensure that the social security fund is ring-fenced against government’s other priorities and therefore guarantee its sustainability.

Norway, for example, has used their oil as a source of sovereign fund, which they invest in major projects such as infrastructure funding, low cost housing yet it serves as a source of funds for those who retire. The Universal Fund project should ideally be implemented as a flagship project under Vision 2030 in order to give it the status and attention it deserves.

Extending pension coverage to informal sector workers is a core requirement for developing countries like Kenya. Do you have any plans to roll out micro pension plans for informal sector workers?
We actually have already done this through our Individual Pension Saving Product – M- Pension. With M-Pension, individuals can save as little as Kshs. 500 per month by simply dialing *289# on their mobile phones. One can also save towards Pension by redeeming Safaricom Bonga points via the short code *126#.

You believe that the government should introduce tax incentives to encourage saving for retirement. What impact do you believe this move will have on Kenyans saving culture?
Tax incentives have long been the primary means used by governments to promote savings for retirement. Countries encourage saving for retirement by taxing retirement savings in private pension plans differently than savings in alternative vehicles or offering other financial incentives. Coupled with financial literacy programs, I believe that incentives can have a far-reaching impact on our savings culture as a society.

What is your take on medium-aged people going on early retirement and investing their pension into business? Do you think this move encourages entrepreneurial activity? Do you have any programs to help early retirees invest?
Many Kenyans dream of retiring early. It is, however, important to note that not everyone will have a choice in the matter, of course. Job loss, health problems, or family responsibilities can disrupt the best-laid retirement plans, forcing people out of the workforce sooner than expected. However, if one is lucky enough to have control over when they retire, it’s worth thinking through the pros and cons before you make any decisions. Even if you can afford to retire early, the options of what business ventures to engage in must be carefully weighed against the risks.

Deciding when to retire is a complex decision that isn’t just a question of dollars and cents. Your health, family obligations, and individual temperament all feed into it. Perhaps most important question is whether you’ve thought through what you plan to do with your retirement years, however many of them lie ahead. As the wise old saying goes, it’s important not just to retire from something but to something.

What has been the impact of COVID-19 Pandemic on pensions? What mitigation measures did you put in place to cushion your fund members?
The COVID-19 outbreak has created significant turmoil on financial markets both locally and internationally. Combined with the current uncertain economic climate, pension funds have been under severe pressure. In light of these challenges, we have continued to serve members and seamlessly deliver all services even during the Covid-19 crisis that has disrupted businesses globally. This is attributable to our state of the art IT Infrastructure and innovation in our products offering. With a fully digitized office, our staff have been able to serve members remotely; all the way from client onboarding, to records management to Benefits and Pension payments.

We also introduced an e-wallet for our scheme Pensions Payment. For Pensioners who chose this option, we are able to remit their pension directly to their mobile phones via M-pesa. This is in a bid to reduce areas of potential exposure for our Pensioners as well as enhance efficiency in receiving their pension.

Arising from the challenges posed by Covid-19, we also piloted Biometric member life verification of our pensioners, which has been very successful. Full implementation of the system was rolled-out in September 2020 after which we no longer require pensioners to physically visit our offices as a routine measure of life confirmation twice every year as is currently the case with other pension funds.

CPF has a long standing history of 90 years, a testimony of Kenyans trust in the institution. What makes your institution stand out?
What has made us stand-out over the decades is customer-centric approach to the administration and governance of the pension funds under our administration. As an organization, we have embraced a culture of incremental innovation and improvement with regards to the delivery of our services and product offering. Additionally, tapping into our human capital coupled with an attitude of continuous improvement has encouraged our most important asset (our employees) to continually come up with new ways of fulfilling the lives of our members and stakeholders.