The Growth of the Public Service Superannuation Fund (PSSF): A Three-Year Journey.
The Public Service Superannuation Fund (PSSF) is rapidly becoming a major player in Kenya’s pension industry. Having been established in 2021, it has grown significantly within a short period. As of 2024, the fund manages over KSh 157 billion in assets.
The CEO of PSSF, Dr. Jonah Aiyabei, recently shared insights into the fund’s progress, challenges, and future outlook.
The PSSF was established as a necessary shift from the previous pension model, which was a defined benefit scheme. Under the old arrangement, pensions were paid from the government’s annual budget without any pre-funded assets.
This system faced significant sustainability issues, often leading to delays in pension payments due to government budgetary constraints.
As Dr. Aiyabei pointed out, “The old arrangement was unsustainable, as it relied solely on government provisions, leading to occasional delays in pension payments.”
The new scheme, which came into effect in January 2021, requires employees under 45 years of age to contribute to their retirement fund, while those over 45 had the option to join.
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This shift to a defined contribution scheme ensures that employees and the government jointly contribute towards retirement, with assets being invested to guarantee returns upon retirement.
The fund currently covers over 443,000 members, including teachers, civil servants, police officers, and members of the National Youth Service (NYS).
Asset Growth and Investment Strategy
Since its inception, PSSF has grown its assets from zero in 2021 to KSh 157 billion by September 2024. This growth is attributed to both the increase in membership and the continuous contributions from the government and employees.
The fund’s assets are largely invested in government securities, with around 89% of the portfolio currently held in Treasury Bills and long-term bonds.
This conservative investment strategy is driven by the need to stabilize the fund before venturing into riskier but potentially more rewarding investments.
Dr. Aiyabei emphasized the need for caution, explaining, “We are still building the systems and expertise to diversify our portfolio. Once we have the right advisory and human resources in place, we will explore property investments and private equity.”
The PSSF is also looking to diversify its portfolio into property and private equity investments.
However, this transition requires careful planning and the development of internal capacity to manage these new investment areas.
A robust investment policy statement has been developed, and the fund’s leadership is exploring opportunities in sectors such as housing and environmentally and socially responsible investments (ESG-compliant funds).
The Importance of Pension Funding and Governance
Globally, the trend is toward funded pension schemes, where contributions are invested to ensure that retirees have a secure financial future.
Dr. Aiyabei underscored the importance of this model, stating, “A funded pension scheme provides stability and guarantees that employees will receive their pensions without delays.”
The shift to a funded scheme also removes the burden from the government’s annual budget and ensures that pension funds are segregated from government assets.
This separation is critical in ensuring that pension contributions are protected and can only be used for their intended purpose.
In terms of governance, the PSSF has established a trustee structure that includes representatives from all major stakeholders, including civil service employers. This governance model ensures that contributions are remitted on time and that there is oversight over the fund’s operations.
“The inclusion of trustees from different employer groups ensures that contributions are remitted in a timely manner, avoiding the challenges faced by some other pension schemes,” explained Dr. Aiyabei.
Regulatory Changes and Industry Developments
Kenya’s retirement benefits sector has undergone significant regulatory changes over the past two decades, which have enhanced transparency and governance in the industry.
The Retirement Benefits Authority (RBA) has introduced new regulations that allow pension funds to invest in a wider range of asset classes, including private equity and real estate investment trusts (REITs).
These changes have opened up new opportunities for funds like the PSSF to diversify their portfolios and potentially earn higher returns for their members.
Additionally, the recent publication of the National Retirement Benefits Policy has placed a strong emphasis on increasing pension coverage across the country. Currently, only about two out of every 10 working Kenyans are covered by a formal pension scheme.
The policy aims to expand coverage, particularly to those in the informal sector, by encouraging the establishment of umbrella pension schemes and mandating employer contributions.
Future Plans and Challenges
Dr. Aiyabei’s vision for the PSSF is to transform it into a trillion-shilling fund within the next decade. To achieve this, the fund will need to continue growing its membership, expanding its investment portfolio, and ensuring that its returns are sufficient to meet the needs of future retirees.
One of the key challenges will be balancing the need for higher returns with the need to protect members’ savings from undue risk.
In the coming years, the PSSF aims to reduce its exposure to government securities from 89% to around 50%, while increasing its investments in private equity, unquoted equities, and property. The fund is also exploring offshore investments to further diversify its portfolio.
Dr. Aiyabei explained, “We are carefully constructing our portfolio, aiming to balance risk and return while ensuring that our investments have a positive impact on society.”
Another challenge facing the PSSF, and the broader pensions industry, is the impact of rising interest rates on the valuation of assets. When interest rates rise, the value of bonds falls, which can negatively affect the portfolio’s overall valuation.
However, Dr. Aiyabei reassured members that these fluctuations are temporary and do not affect the long-term stability of the fund.
“We are not concerned about short-term market fluctuations,” he said. “Our focus is on the long-term performance of the fund, and we have measures in place to manage these risks.”
Milestones Achieved Under Dr. Aiyabei’s Leadership
Dr. Aiyabei took over as CEO in November 2023 and has already overseen several key milestones. Under his leadership, the PSSF has implemented a robust Enterprise Resource Planning (ERP) system to improve operational efficiency and enhance member services.
The fund has also completed its strategic plan, which outlines its goals and priorities for the next five years.
One of the major achievements has been the establishment of a permanent office space for the PSSF, providing a stable base from which to serve its members.
In addition, the fund has focused on capacity building, ensuring that staff members have the skills and knowledge needed to manage the growing fund effectively.
Looking ahead, Dr. Aiyabei plans to continue strengthening the PSSF’s systems and processes, with a particular focus on improving communication with members through digital platforms and a user-friendly website.
Conclusion
The Public Service Superannuation Fund is on a strong growth trajectory, with significant achievements in its first three years of operation.
Under the leadership of Dr. Jonah Aiyabei, the fund is well-positioned to continue expanding its membership and diversifying its investment portfolio.
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By focusing on sound governance, prudent investment strategies, and a commitment to delivering value to its members, the PSSF is set to become one of Kenya’s largest and most successful pension funds.
The Growth of Public Service Superannuation Fund (PSSF)