Code of Governance for Kenya’s Occupational Retirement Benefit Schemes

Abstract

Empirical studies on governance recommend the need to develop codes of governance to guide managerial behaviour and enhance institutional management. In this vein, various codes of governance such as the Cadbury Code and the Kings Code have been developed to steer governance in the corporate world. On the other hand the Organisation for Economic Co-operation and Development (OECD) and International Organisation of Pension Supervisors (IOPS) have issued guidelines with regard to governance in the pension fund industry. This paper develops a code of governance for Kenyan retirement benefit schemes. Multiple approaches namely document review, interviews with regulators and service providers (fund managers, actuaries, custodians and administrators) and survey with trustees and members of retirement benefit schemes are used to draw inferences and develop the code. The study uses the population of service providers and a sample of 314 trustees and 1106 members. Qualitative data is transcribed and recorded in to coherent themes to address the study objective. Data reduction was carried out by use of Exploratory Factor Analysis (EFA) while factor extraction was done using the Maximum Likelihood approach available in SPSS 21. Principal Components Analysis (PCA) was used to extract maximum variance from the data set with each component thus reducing the large number of variables to in to smaller set of variables. The results yield eleven blocks that are used to build the code of governance. The blocks are;   compliance with regulatory framework, information control systems, decision taking, managing conflicts of interest, monitoring, oversight and performance management, documentation of trustee responsibilities, risk management, transparency and accountability, competence of trustees, trustees’ responsibilities to members and providing relevant information to members. Trustees are urged to use these blocks and the factors that loaded on them to construct customized code of governance for their retirement benefit schemes. Regulators are also urged to use the code while developing pension governance regulations.

Keywords: code of governance, pension governance, retirement benefit schemes