Delays in the implementation of civil service pension reforms are stifling growth opportunities for Kenya's private sector fund management industry, market players say.

The Government's plans to compel civil servants to contribute a portion of their salaries to a pension scheme were expected to lead to the formation of a multi-billion shilling fund.

The fund was to be managed by a team of professional fund managers, pooled from 13 local fund managers, with each angling for a piece of what is expected to be the largest pension fund in the country.

But the proposed scheme is yet to take off, two years after Parliament endorsed it. "Currently, the government's civil service scheme is still not a separately funded scheme. But if this were to happen, it would mean more assets under management for fund managers," said Eric Kibe, chief executive officer at Sanlam Investment Kenya.

He added that assets under management are not huge compared to the number of fund managers in the industry, suggesting that a civil service pension scheme under private management would open new opportunities for players in the market.

Today, the 13 fund managers are scrambling for slices of pension schemes valued at an estimated Sh180 billion. In Botswana, for instance, the privately managed civil service pension fund has opened up business for fund managers in the country. But Kenya runs an unfunded pension system which guarantees civil servants a lifetime pension without them contributing to it.

At least 20, 000 workers join the civil service pension's payroll annually and the number is expected to increase drastically in the next decade, according to senior officials at the pensions department.

Currently, there are about 180, 000 pensioners, but this number is expected to grow to 230,000 in the next three years, imposing a new demand on the management of the pension system and the growing payouts competing for limited tax revenues.

According to the Retirement Benefits Authority (RBA), pension's penetration in Kenya stands at 15 per cent of the average seven million formal employed Kenyans. The penetration rate within the informal sector is negligible, according to National Social Security Fund (NSSF) statistics.

Pension provision disjointed

Researchers at RBA also point out the need for an overall policy and legal framework to encompass all pension related sectors. At present, pension provision in the country remains disjointed with occupational and individual schemes falling under the Retirement Benefits Act, while the National Social Security Fund (NSSF) falls under both the NSSF Act and RBA Acts.

The Civil Service Scheme falls under the Pensions Act, while there are innumerable legislation covering other areas. Pension scheme managers say that education on gains from pension schemes is the most viable way of ensuring that more Kenyans get into the pension bracket.

In the past two years, the Government has tried to introduce a contributory pension scheme for its employees without much success. The scheme that civil servants were to join voluntarily was hinged on a review of public sector salaries.

In 2006, the government issued a circular asking civil servants to contribute partly to their pension.

The circular was rejected amid strong opposition by the Kenya National Union of Teachers and the Kenya Civil Servants Union.

Industry insiders say the move may have flopped because the circular lacked legal teeth, with the state having failed to amend the Pensions Act. This is the law that regulates the administration of the civil service pension scheme.

Under the contributory pension scheme, civil servants were to contribute 7.5 per cent of their salary while the government would top it up with another 12.5 per cent. The rate of return on contributions was set at 2.5 per cent per year.

But this was expected to change after the government allowed the National Social Security Fund to revise its rate of return to five per cent last year.

Market players say the non contributory benefit scheme is unworkable as it removes the responsibility of saving for retirement from civil servants and places the burden on those serving in the private sector.