A survey of the impact of the retirement benefits Act, 1997 on pension funds investments portfolio
The Retirement Benefits Act, 1997 brought much needed sanity in the retirement benefits sector. Before the enactment of the Act, numerous Acts of Parliament related to retirement benefits offered a weak framework for the regulation of the sector, namely the Pensions Act, Cap 189; the Pensions (increase) Act, Cap 190; the Provident Fund Act, Cap 191; the Widows and Orphans’ Pensions Act, Cap 192; the Asian Widows’ and Orphans’ Pensions Act, Cap 193; the Asian Officers’ Family Pensions Act, Cap 194; the Widows’ and Children’s Pensions Act, Cap 195; and the Parliamentary Pensions Act Cap 196. There are two other Acts which affected pension schemes, namely: the Insurance Act, Cap 487; and the Income Tax Act, Cap 470. There was therefore no single law that regulated the retirement benefits sector. The sector was characterized by gross mismanagement of pension schemes. Pension schemes lacked clear investment policies which resulted in poor returns on investments of scheme funds. The Retirement Benefits Act, 1997 put in place much needed reforms and in addition, the Act separated the custody of scheme funds from the management of the same. There is now a requirement that every scheme fund must have a Custodian and a Manager. The Sponsor no longer had unbridled access to scheme funds. The duties of the Custodian and the Manager were clearly delineated. Tough conditions were set for the investment of scheme funds. Clear investment guidelines of scheme funds were provided. This study shows that pension schemes have realigned their investment portfolios and in particular the study shows that pension plans have now become major players in the capital market. Investment by pension plans in securities traded at the Nairobi Stock Exchange has increased tremendously, making them major institutional investors. This has improved the liquidity of securities traded at the Nairobi Stock Exchange. The study shows that pension schemes have kept within the investment ceilings set by the Retirement Benefits Act, 1997. There has also been major changes in the proportions of funds invested in some types of assets in light of the investment guidelines of the Retirement Benefits Act, 1997.