REGULATION OF PENSION SCHEMES IN KENYA: A CASE FOR A PENSIONS GUARANTEE FUND JACKLINE WAKUTHII WARUI G62/88259/2016 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF LAWS (LL.M) OF THE UNIVERSITY OF NAIROBI 2018 SCHOOL OF LAW THE UNIVERSITY OF NAIROBI NAIROBI i DECLARATION I JACKLINE WAKUTHII WARUI, declare that this thesis is my own original work and that it has not been submitted for examination for the award of a degree at any other university. All sources of information have been acknowledged. SIGNED: JACKLINE WAKUTHII WARUI …………………………. DATE: …………………………. This thesis has been submitted for examination with my approval as the University Supervisor. SIGNED: DR. NJARAMBA GICHUKI …………………………. DATE: …………………………. ii ACKNOWLEDGEMENT My deepest gratitude goes to my supervisor, Dr. Njaramba Gichuki, for his profound support, ideas and invaluable guidance during the writing of this thesis. His guidance has made me a better thinker, writer and researcher. I would also like to thank him for affording time for me despite his busy schedule. I would like to express my utmost gratitude and special thanks to my dear husband Peter Kibe and to my beloved son, Ephraim Kibe, who endured my limited family time and for their encouragement all through the journey of my studies. To my parents and friends for offering prayers and motivation through my LL.M studies which has made completion of my studies possible, may God bless you all. Above all I give glory to God for granting me sufficient grace to start and complete this thesis. His name be Praised! iii DEDICATION I dedicate this thesis to all state officers, public officers and the legal practitioners and businesses doing work related to pensions and pension schemes in Kenya. I trust that they can use this research to develop ideas on the establishment of a pensions guarantee fund in Kenya in order to promote social security. iv LIST OF INTERNATIONAL INSTRUMENTS AND STATUTES International Conventions International Labour Organization Convention Universal Declaration on Human Rights. The International Labour Organization Social Security (Minimum Standards) Convention The International Convention on the Elimination of All Forms of Racial Discrimination, Convention on the Rights of the Child, The Refugee Convention and International Covenant on Economic, Social and Cultural Rights. National Laws and Regulations Capital Markets Authority Act Compensation Rules and Procedures for Investor Compensation Fund Insolvency Act, 2015 Insurance (Policyholders Compensation Fund) Regulations, 2010 Kenya Deposit Insurance Act National Social Security Fund Act Pensions Act, 1950 Retirements Benefits Act, 1997 Retirement Benefits (Deputy president and Designated State Officers) Act The Constitution of Kenya, 2010 Salaries and Remuneration Commission, Wage Bill Quarterly Bulletin, Volume 1, 2017 Cross-border laws Employee Retirement Income Security Act, 1971, USA Law on Improvement of Occupational Pensions, 1974, Germany Pensions Benefit Act, Ontario Pensions Act, 2004, UK LIST OF CASES Grenville Holden Hampshire v. The Board of the Pension Protection Fund [2016] EWCA Civ 786. Kenya Plantation and Agricultural Workers’ Union v. The Board of Trustees, National Social Security Fund and the Hon. Attorney General, Petition No. 11 of 2014. v LIST OF ABBREVIATIONS CAJ Commission on Administrative Justice CJEU Court of Justice for European Union DIF Deposit Insurance Fund ICF Insurance Compensation Fund KDIC Kenya Deposit Insurance Corporation OECD Organization for Economic Community Development NSSF National Social Security Fund PPF Pension Protection Fund RBA Retirement Benefits Authority vi TABLE OF CONTENTS Contents DECLARATION ........................................................................................................................................ ii ACKNOWLEDGEMENT ..........................................................................................................................iii DEDICATION ............................................................................................................................................ iv LIST OF ABBREVIATIONS ..................................................................................................................... vi TABLE OF CONTENTS ........................................................................................................................... vii ABSTRACT ................................................................................................................................................x CHAPTER 1 ............................................................................................................................................... 1 INTRODUCTION ...................................................................................................................................... 1 1.1. BACKGROUND ............................................................................................................................ 1 1.1.1. Statutory/public schemes ......................................................................................................... 6 1.1.2. Defined contribution and Defined benefit schemes ................................................................. 6 1.1.3. Provident Fund and Pension Fund ........................................................................................... 7 1.1.4. Occupational scheme and individual scheme .......................................................................... 7 1.2. STATEMENT OF THE PROBLEM............................................................................................... 8 1.3. JUSTIFICATION FOR THE STUDY .......................................................................................... 10 1.4. LITERATURE REVIEW.............................................................................................................. 14 1.5. THEORETICAL FRAMEWORK ................................................................................................ 23 1.5.1. Economic analysis of law ...................................................................................................... 23 1.5.2. Public interest theory ............................................................................................................. 24 1.5.3. Agency theory ....................................................................................................................... 24 1.5.4. Lifecycle Hypothesis Theory ................................................................................................ 25 1.6. OBJECTIVES OF THE STUDY .................................................................................................. 27 1.7. RESEARCH QUESTIONS ........................................................................................................... 27 1.8. HYPOTHESIS .............................................................................................................................. 27 1.9. RESEARCH METHODOLOGY .................................................................................................. 28 1.10. LIMITATIONS ......................................................................................................................... 28 1.11. CHAPTER BREAKDOWN ...................................................................................................... 28 CHAPTER 2 ............................................................................................................................................. 30 vii THE LEGAL FRAMEWORK OF PENSION SCHEMES IN KENYA ................................................... 30 2.1. THE RETIREMENT BENEFITS ACT .................................................................................... 31 2.2. THE NATIONAL SOCIAL SECURITY FUND (NSSF) ACT ................................................ 38 2.3. PENSIONS ACT ...................................................................................................................... 46 2.4. RETIREMENT BENEFITS (DEPUTY PRESIDENT AND DESIGNATED STATE OFFICERS) ACT ................................................................................................................................. 47 2.5. PRESIDENTIAL RETIREMENT BENEFITS ACT ................................................................ 48 2.6. CONCLUSION ......................................................................................................................... 49 CHAPTER 3 ............................................................................................................................................. 51 THE VIABILITY OF A PENSIONS GUARANTEE FUND IN KENYA ............................................... 51 3.1. CASE FOR PENSION GUARANTEE FUND ......................................................................... 51 3.1.1. Need for a fall back mechanism for pensioners ................................................................. 51 3.1.2. Market failure .................................................................................................................... 52 3.1.3. Diversification ................................................................................................................... 53 3.1.4. Systematic risks ................................................................................................................. 53 3.1.5. Political reasons ...............................................................................................................