East African countries have drafted a policy framework to harmonise their retirement benefits schemes that will see workers in the region receive part of their life savings on a regular basis before they retire from formal employment.
Under the proposed plan, EAC citizens will also benefit from annuitized pension from companies they had worked for outside their countries but within the EAC regional bloc.
According to Kenya’s Ministry of EAC Affairs, the draft EAC retirement benefits policy will be reviewed by the Council of Ministers during the Sectoral Council on Finance and Economic Affairs meeting in Dar es Salaam next month.
The policy considers a number of pertinent issues necessary for the development and growth of the pensions sector in the region with a view to facilitating free movement of persons, services, goods and capital.
It also seeks to promote prudent investment of retirement funds to promote prosperity and improve the welfare of the people of the EAC region.
Among key issues under consideration by the regional bloc through the Capital Markets Insurance and Pension Committee are harmonisation of pension tax regimes to facilitate portability of accrued pension benefits across the EAC region and development of an annuity market in the region.
Others are mutual recognition agreement on pension service providers that will allow them to set up offices across borders, increased pension coverage for both formal and the informal sector in the region, liberalisation of the pension sector to attract more players and synchronisation of investment principles and standards for the sector.
“As a Community we are working on common policies on pension in the region. Once we have common policies, you will find it easier to work in any country,” said Edward Odundo, chief executive of Kenya’s Retirement Benefits Authority.
Currently, the pensions sector in the EAC has different legal, tax regimes and regulatory frameworks.
In addition, there is no portability of pensions within the East African region.
However, the Kenyan parliament has passed the new National Social Security Fund Act 2013 to boost cross-border portability of social security benefits.
Under the new law, the NSSF Board is required to co-ordinate with the other member states’ social security schemes to guarantee the portability of worker’s benefits, including the actual physical transmission of contributions and benefits to the Kenyan NSSF.
The Fund is also tasked to ensure that benefits can be exported.
The portability of social security benefits under the new NSSF Act is seen as many as a forerunner to the regional cross-border portability of retirement benefits.
According to CH Coulson Harney Advocates, the other EAC member states have not yet passed laws to facilitate portability of social security benefits.
It is argued that any progress in achieving social security benefits portability will require the other EAC member states to either pass national laws on social security or push for enactment of a common EAC law to be adopted by all member states, to ensure unified implementation of pension laws within the EAC.
Burundi and Rwanda are among the countries that signed a memorandum of understanding in 1978 that binds the Economic Community of the Great Lakes Countries to allow portability of pension benefits.
On the basis of a new bilateral agreement with Rwanda that allows pension portability, individuals who live in Rwanda, but have a contribution record with the mandatory pension scheme — National Institute of Social Security of Burundi — receive their pension payments through quarterly transfers.
Individuals who live in Burundi but have a contribution record with the Rwanda Social Security Board RSSB, receive their pension as monthly payments.
As a result, the EAC Secretariat is in discussion with partner states and Stakeholders to come up with appropriate policies that will guide priority activities in order to make progress with the co-ordination and harmonisation of the pensions sector in line with the EAC Common Market Protocol, the Monetary Union Protocol and the EAC Treaty.
To realise harmonisation, the EAC pension supervisors have come together to address the differences in the pension systems across partner states by developing joint policies.
According to the EAC Secretariat, the pension sector is coming up with common standards of legislation and regulation of pension funds across the EAC region.
“The EAC Secretariat in conjunction with the EAC pension supervisors in the region after signing an MoU established the East African Supervisors Association to provide a forum for information sharing and policy dialogue,” said Richard Owora, the EAC Secretariat’s communications officer.
According to the Secretariat, the region faces low pension coverage that has left the vast majority of the population without access to formal old-age social protection.
Kenya has about 1300 registered retirement benefits scheme with over 1.7 million members but pension coverage in the country is still low at about 15 per cent of the total labour force, according to data from RBA.
It is estimated that an individual requires about 75 per cent of the pre-retirement income and for low-income earners 90 per cent and more to maintain their living standards after retirement.
In Kenya, the pensions schemes are classified as the National Social Security Fund, the Civil Servants Pension Scheme, occupation-based pension schemes and voluntary individual schemes.
NSSF is a pension fund for the formal sector and a provident fund for the self- employed.
Every employer with at least one employee is required to register.