Jubilee Insurance has been one of my favourite pension plan recommendations for both Corporate Clients and Individual Clients, for a number of years.
So, why have I had confidence in recommending Jubilee Insurance?
In my other life as an Independent Financial Adviser, I have to monitor financial markets across borders. I don't mean just reading the local papers, surely, but, reading into the debate, that has been on since 2007, between proponents of "Keynesian"-versus-"Austrian Economics". I confess to favouring the "Austrian School of Economics", as being more solid (that's another discussion in itself). On the one hand, Keynesian economists favour "inflating" and "busting" bubbles, excuse me, what did Adam Smith mean by "The Invisible Hand"! Now that we think globally, the challenge is to act locally.
When we review the Performance of Insurance-Managed funds, we find that Jubilee is consistently positioned in the upper-quartile, and FIRST in its class with a net return of 10.77% over the last 11 years, upto December 2012. The long-term performance has been resilient even during periods of financial uncertainty. You can understand that every Fund Manager's headache is to ensure that their portfolios are not over-exposed to "down-side" risk, whilst attaining sufficient return for investors to beat inflation. Other risk events we have considered are exposure to Systemic Shocks to the Financial Markets, such as in 2008.
In addition to Performance, Jubilee's product is Cost-Effective for Corporate Managers, who are under pressure to deliver value to Employees and Shareholders, particularly if they are growing SMEs. The cost of setting up a stand-alone fund is now a minimum of KShs 600,000, in the first year. This figure is an ad hoc composite figure derived from the Legal costs and, Operational costs of the Trustees, Fund Manager, Custodian, Auditors, and Bank. This is a major impact to an SME or Corporate typically having a High Revenue to Staff ratio, that is, small businesses with high turnover. The cost of signing up with Jubilee is virtually Nil.
Jubilee Insurance Pension is structured as an Umbrella Pension scheme. This means that various Corporates and NGOs become members of a Pooled-Fund. Therefore, the 2% flat charged by Jubilee Insurance is allocated across various Pension Plans. Compare this with the annual cost of running a stand alone pension plan, which is a minimum of KShs 200,000.
Then there's the "Administrative Time-Saved" by out-sourcing Trustee Functions. The Human Resource Managers have online access to statements and reports from meetings. Therefore, management saves time for building shareholder value.
The Umbrella Pension Scheme is structured as a "Defined Contribution" Scheme. There are fewer disputes with defined contributions, and any disputes are easier to settle.
The Fund is structured to be flexible for employers and employees who're parting ways. Here's I'm assuming that employees, who change employers, wisely convert their funds into their own Personal Pension Plans.It is now very common for employees to have had 5 or more employers in 15 years of service, as a resident or non-resident. I have helped people consolidate their plans, from even employers they never thought possible. And I think its always good to have your own Personal Pension Plan, as a "Briefcase", as you traverse the Corporate World.
Many times, we find that Owners of SMEs place their business' ahead of their personal needs. They will struggle to ensure staff are paid but, at time there's very little left to pay pension contributions. This is probably due to a slump in orders, a new purchase, higher interest rates amongst many other factors. Pension contributions range from NIL to 15% of gross salary, but on average 5% is the standard contribution, but is not obligatory.
We suggest employers discuss and agree with employees, either of the following options:
- staggered defined contributions by the employer, whilst employees contribute their 5% contribution;
- nil contributions during lean periods to be made-up when business picks up, whilst employees continue their 5% contribution ; or
- an initial 5% contribution by both the employer and employee.
This flexibility contributes to a better employer-employee relationship for mutual gain.
Other standard features of pension products in Kenya are Withdrawal Options and Taxation, as these are dictated by law, and are not product specific. In general, early retirement is at 50 years, normal retirement at 60 years and late retirement at 65 years. The most frequently contentious issue during presentations are Withdrawal Options, which are as follows:
- The Employee Portion plus 50% of Employer Portion is payable in cash, if a member is below 50 years;
- 50% vested employer portion is locked-in until the employee attains retirement age;
- Benefits are deferred to be collected at a later date; or
- Benefits to be Transferred to any other Registered Scheme or Personal Pension Plan.
Interaction with various business teams has shown me that there are interesting generational dynamics at play that need to be taken into account when talking about pension. Generation Xs and Ys, and now even those in the +40 category, are willing to step-out into another job. Job Security is a thing of the past, its now about what can I get now.
Look at how many Corporate Managers applied for jobs in the Public Sector as Cabinet Secretaries (formerly called Ministers), Principal Secretaries (formerly called Permanent Secretaries). Also consider how the Public Service head hunted for some of the positions.
Many times, Employees consider whether an Employer has a Good Pension Plan. This make the difference in attracting and retaining The Best Talent, and many will agree that Good Talent is hard to retain these days!
All funds are regulated by the Retirement Benefits Authority, with oversight from the Kenya Revenue Authority. There are Tax Benefits applicable to all schemes in Kenya are fairly standard. The Employer gets some Tax Relief for contributing to a Pension Scheme upto KShs 20,000 per month, an incentive to have employees in a pension scheme.
There are two taxation methods depending on when an Employee withdraws from a scheme:
- Early Withdrawal before attaining 15 years in the scheme or retirement, whereby standard tax rates apply; or
- 10% of the first KShs 121,968
- 15% on the next KShs 114,912
- 20% on the next KShs 114,912
- 25% on the next KShs 114,912
- 30% on amounts in excess of KShs 466,704
- Withdrawal after 15 years in the scheme or retirement, whereby the tax bands are expanded to KShs 400,000 as an incentive to members to retain funds until they attain the age of retirement
- 10% on the first KShs 400,000
- 15% on the next KShs 400,000
- 20% on the next KShs 400,000
- 25% on the next KShs 400,000
- 30% on amounts in excess of KShs 1,600,000
Mortgages can be accessed using Retirement Benefits as collateral. This offers a way of ensuring that members have a roof over their head, when they retire. Those who take mortgages, mortgages, are allowed to access a Tax-on-Interest Benefit, upto prescribed limits.
Jubilee's Pension performance has been exceptional, and the Product's features make it a winner.
When you need to review your Retirement "Egg Nest", consider if you're getting the Best. Seek the opinion of an Independent Financial Adviser, first, before you make a decision.
Disclaimer: Please note that the photos posted on this Blog are not owned by First Liberty Insurance Agency ("First Liberty Kenya") but, are posted here for Educational Purposes. The views here are those of First Liberty Kenya and not of any third party.
