July 18, 2024

Unraveling the Sh100 Billion Pension Fund Partnership with NCBA, Co-op, and Stanbic Bank

NCBA

NCBA Group Plc, Cooperative Bank (Co-op), and Stanbic Bank have successfully clinched a collaborative deal to collectively oversee a substantial Sh100 billion in pension contributions for the Public Service Superannuation Scheme (PSSS).

The PSSS, instituted in 2012 as part of governmental reforms in the Public Service Pensions sector, has experienced a remarkable surge in contributions, reaching Sh41.4 billion by June 2022.

Benefiting over 350,000 civil servants, including police officers and teachers, the scheme is designed to align with best practices, alleviating the pension burden on the exchequer and reallocating public funds for national priorities.

Commencing operations on January 1, 2021, the PSSS provides an array of benefits, such as social security, retirement benefits, financial protection, disability benefits, and portability of benefits.

By June 2022, the scheme’s membership had swelled to 368,795 from 330,318 in January 2021.

Banks, namely ncba group plc, co-op bank, and stanbic bank kenya, play a pivotal role in ensuring secure and stable fund management for civil servants.

NCBA Group Plc, the largest banking group in Africa, offers retail, corporate, and digital banking; 

Co-op Bank, a financial cooperative, focuses on providing traditional banking services, while Stanbic Bank, part of the Standard Bank Group, offers a range of services, including corporate and investment banking.

Outperforming competitors such as Bank of Africa, Equity, I&M, KCB, the National Bank of Kenya, Prime Bank, SBM, and Standard Chartered, the trio secured the coveted position as custodians of pension funds, engaging in a fiercely competitive race for the lucrative contracts to manage the contributions.

The selection of these three financial institutions for managing the pension funds was based on their scores in metrics such as experience in custodial services for pension schemes.

As outlined in the Treasury’s work plan, the custodian banks are set to perform these services for an initial term of three years. Upon expiration, the arrangement holds the potential for renewal for an additional three years, contingent upon mutual agreement and hinging on the banks’ demonstrated performance.

Addressing concerns related to pension disbursement and management, the selected banks must provide robust assurances regarding the security and stability of the pension funds.

Implementation of internal controls, risk management frameworks, and diversification strategies will be critical in safeguarding the funds and maintaining the trust of civil servants.

The banks are anticipated to safeguard all assets within the schemes and generate quarterly financial management reports concerning the fund.

Additionally, the custodians will conduct statistical analyses of the investments and returns on investments held in their custody, furnishing the fund administrator with the relevant data.

Civil servants stand to gain significantly from this deal. The expertise of ncba, co-op, and stanbic banks in managing financial portfolios is expected to optimize pension returns and contribute to the long-term sustainability of the pension scheme.

The deal is a testament to the commitment to ensuring financial security for those who have dedicated their careers to public service.

Addressing potential risks associated with pension funds, including market risk, credit risk, and operational risk, is imperative.

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The safeguards in place, such as robust investment policies, internal controls, and risk-based supervision, need to be highlighted to reassure stakeholders and mitigate potential risks effectively.

The regulatory landscape governing pension fund management, particularly set by the Retirement Benefits Authority, plays a crucial role.

Compliance requirements for banks handling large-scale funds must be emphasized to ensure transparency, adherence to legal provisions, and accountability in managing the pension contributions of civil servants.

Effective communication strategies from PSSS and the banks are paramount. Transparency in addressing potential issues, coupled with continuous updates, will contribute to building and maintaining public trust.

Addressing concerns promptly and clearly will foster confidence in the selected banks’ ability to manage the pension funds securely.

The success of this deal could set a precedent for similar collaborations, contributing to economic growth, financial market development, and ultimately, the well-being of civil servants in their retirement years.