Pension scheme disputes in Kenya: causes and solutions

Why we studied disputes in pension schemes

Disagreements are part of any scheme where members, trustees, sponsors and service providers deal with each other every day. In retirement benefits schemes they tend to arise at three points: when trustees and service providers are appointed, when a member joins, and when a benefit is paid out.

Kenyan law already expects schemes to plan for this. Scheme rules must set out how disputes between the parties will be resolved, and schemes must have ways to settle conflicts between trustees and members, sponsors, service providers and beneficiaries.

Our study, carried out with Strathmore University, set out to learn what these disputes are about, how well the people involved understand the process for handling them, what the consequences are, and what part trustees and the Retirement Benefits Authority (RBA) play.

What we found: where disputes start

Among the trustees, members and service providers we surveyed, the processing of final benefits was the most common source of conflict, followed by expenses charged to the fund and the appointment of trustees. Scheme investments, delayed benefit transfers, the choice of service providers, reporting, delayed membership, sponsor interference and late funding by sponsors also came up.

The leading causes were lack of information, pension deductions that were not passed on to the scheme, and delayed payments. In some cases deductions appeared on employees' payslips even though the sponsor had not remitted them.

Members whose employment had been ended by their employer were involved in disputes more often than any other group, ahead of members who had retired. Many of them are going through the benefits process for the first time and may not know how it works.

Disputes also take time. More than four in ten respondents had dealt with between one and five cases in the past year, and 52% said they spend 1 to 6 hours a week on them. Cases involving beneficiaries can take up to six months, although in ideal cases most member disputes are solved within a week.

What we found: how disputes are handled

Half of our respondents (50%) said trustees hold the ultimate responsibility for managing conflicts, while 22.5% looked to the RBA. Trustees played the biggest part in resolving disputes, working within the trust deed, the scheme rules and the law.

The written guidance trustees rely on is not widely known, though. Only 26% said their scheme had a conflict resolution policy, 37% said it had none and another 37% did not know. Most (76%) said they had received some training on handling these conflicts, from the RBA, scheme administrators or even the internet.

Conflict was not all bad. The positive outcomes mentioned most were a better understanding of pension matters and better ways of handling queries, followed by greater awareness of why active member participation matters and better working relationships. The negative outcomes mentioned most were personal insults or attacks, harassment and damage to reputation, followed by employer and employee conflict, financial loss, legal consequences and penalties from the regulator.

Asked what would reduce conflict, respondents most often chose more effective member training, followed by better governance of schemes and better communication between the parties in the industry.

Contrary to the norm, conflicts could result in positive feedback when they are thought of as catalysts of change as opposed to clashing opinions.

What this means

For members, it pays to know the rules before you need them. Ask whether your scheme has a conflict resolution policy, and keep your beneficiary details current: it is not always clear who should receive a benefit when records are outdated or missing, and some nominees are never told they were named.

If a complaint arises, the RBA expects it to be raised first, in writing, with the party thought to be at fault. A member who is still dissatisfied with a decision of the trustees, manager or custodian can ask the RBA's Chief Executive Officer, in writing, to review it.

Trustees carry most of the load, and the report calls for them to be equipped to respond to conflict positively and to keep channels of communication open. It also recommends mediation as industry best practice, because it is faster than other routes, confidential and helps preserve relationships.

For employers and HR managers, two findings stand out: deductions that never reach the scheme, and the number of disputes involving members who leave after termination. Remitting deductions on time, and making sure departing staff understand how their benefits will be processed, would address two of the triggers we found.

For the RBA, government and the wider industry, the report suggests regular training for everyone involved, conflict committees, periodic reporting on disputes, hotlines for harassment, and rewards for companies and trustees that settle matters amicably. It also asks government to avoid frequent changes, such as to tax or retirement age, that unsettle the sector and weaken public trust.

The full report also sets out how the RBA and the Retirement Benefits Appeals Tribunal handle complaints, and looks at how the Netherlands, Denmark, Norway and Australia, and Kenya's banks, insurers and SACCOs, deal with disputes.

What we recommend

• Run regular, needs-based training on handling disputes for trustees, members, beneficiaries, sponsors, service providers and regulators, with certificates.
• Equip trustees to respond to conflict positively and encourage open channels of communication.
• Set up conflict management and resolution committees, and include conflict skills in performance reviews.
• Report on disputes regularly, provide hotlines for harassment, and reward companies and trustees that settle matters amicably.
• Adopt mediation as industry best practice for resolving disputes.
• Government should avoid frequent changes that unsettle the sector, and support it with tax changes that encourage saving through pensions.