Trustee pay and governance in Kenya's pension schemes
We asked 270 pension scheme trustees in Kenya whether they are paid, how, and whether they should be. 88% said trustees should be paid, but only 32% were, mostly through an allowance for each board meeting.
Key findings
88%
Most trustees we surveyed believe they should be paid
88% of the trustees we surveyed said trustees should be paid for their role. The added responsibility was the reason given most often, followed by the motivation to perform better.
Kshs 33,137
Pay is the exception, and mostly a meeting allowance
32% of the trustees in our sample are paid. Average pay was Kshs 33,137 a year, ranging from Kshs 3,000 to Kshs 100,000, or an estimated Kshs 8,284 per sitting at four meetings a year.
40%
Scheme rules allow pay, but formal policies often lag
92% said their scheme rules allow trustees to be paid, yet 40% said their board has not developed a formal policy on trustee pay. 72% of paid trustees are paid from the fund itself.
32%
Few trustees have their performance formally reviewed
Only 32% of the trustees we surveyed are formally reviewed, and 25% say no review is done. 78% of unpaid trustees, and 47% of paid ones, received no service contract on appointment.
Paying trustees was not linked to different fund returns
Average self-reported returns last financial year were 6.00% where trustees are paid and 5.81% where they are not, with no statistical difference between the two.
Why we did this study
Pension scheme trustees are the bridge between members saving for retirement, the strategy to meet their goals and the benefit they finally receive. Kenyan law lets trustees delegate work to professionals registered with the Retirement Benefits Authority, such as custodians, actuaries, auditors, administrators and fund managers. It does not take away the trustees' overall responsibility for decisions and governance.
That responsibility has grown. In the ten years before our study, pension fund assets grew five-fold to over Kshs 900 billion, and the average scheme grew from under Kshs 100 million to about Kshs 500 million. More schemes are now defined contribution schemes, where members, not employers, carry the risk that their savings will not be enough.
Trustee boards have traditionally run on a voluntary model, and Kenya's rules say little about paying trustees. The regulations mention scheme rules that provide for pay and require it to be disclosed at the annual general meeting, but they do not set the amount or the structure. We published this report as a discussion paper to open a debate: should trustees be paid for the responsibility they carry, and if so, how?
What we found: who is paid, and how
32% of the trustees in our sample are paid for their role. Among them, average pay was Kshs 33,137 a year, from a low of Kshs 3,000 to a high of Kshs 100,000. With the statutory minimum of four board meetings a year, that comes to an estimated Kshs 8,284 per sitting.
Most paid trustees receive an allowance for each full board meeting. 72% are paid from the fund itself, and 35% say the board chair is paid differently from other trustees. Nearly half say the board decides on pay collectively, while 33% say the sponsor sets it.
Pay varied with the kind of scheme. Trustees of schemes sponsored by government agencies or public entities were the most likely to be paid, and those of non-governmental organisations the least likely. Average pay was higher in bigger schemes, from Kshs 25,021.88 a year in schemes under Kshs 100 million to Kshs 51,125 in schemes over Kshs 2 billion.
Whether a trustee was paid, and how much, showed no statistically significant link to how they were appointed or to their role on the board. Written rules lag behind practice: 92% said their scheme rules allow trustees to be paid, yet 40% said their board has not developed a formal policy on trustee pay.
What we found: reviews, engagement and trustees' views
Only 32% of the trustees we surveyed have their performance formally reviewed, and 25% say no review takes place. Just 13% say their trustee work forms part of their staff appraisal with the sponsor. 78% of unpaid trustees received no service contract when they were appointed, compared with 47% of paid trustees.
Paid trustees reported stronger engagement, by about 10 percentage points on key measures, especially in reviewing and terminating investment managers. 42% of paid trustees said their performance is formally monitored, against 26% of unpaid trustees, though this difference was not statistically significant. The number and length of meetings did not differ significantly between the two groups.
Pay did not show up in results. The average self-reported return of the funds in the last financial year was 6.00% where trustees are paid and 5.81% where they are not, with no statistical difference between them.
Asked what most limits them, 53% of trustees named time and 23% named fund governance issues. 88% believe trustees should be paid, most often because of the added responsibility, then the motivation to perform better, then the extra, uncovered risk they carry. Those against said the role is voluntary and the fund benefits them too, that pay could invite abuse for personal gain, or that trustees already earn a salary from the sponsor.
Trustees suggested 11 different bases for pay. Fund performance came up most often, followed by a rate benchmarked against the market.
As pension funds mature it is clear that the traditional voluntary based model of pension scheme governance may not work as well with increasing volume and complexity in the regulatory and investment environment.
What this means
For trustee boards, the gaps are about structure as much as money. Formal pay policies, service contracts and performance reviews are often missing. We expect pay, engagement, monitoring and performance reviews to become growing challenges for trustee boards in the short and medium term.
For sponsors, trustee duties often sit alongside a trustee's job with the sponsor. Time was the constraint trustees named most, and few said their trustee work counts in their staff appraisal, so sponsors may want to look at how they make room for the role.
For members, especially in defined contribution schemes where they carry the investment risk, how their scheme is governed matters. In our data, paying trustees was not linked to a difference in fund returns, and the regulations require trustee pay to be disclosed at the annual general meeting.
For the regulator and the industry, the law is silent on how much trustees are paid and how. Recognising how hard it is to design an ideal structure without a clear legal framework, our study concludes that there is an urgent need to consider an appropriate industry remuneration policy. The full report has the detail, including pay by sponsor type and fund size, and what trustees told us in their own words.
What we recommend
- Consider an appropriate industry-wide remuneration policy for trustees, since the law is silent on how much they are paid and how