FINANCIAL INSTITUTIONS AND CAPITAL MARTKETS
a) Pension: Money paid regularly to retired employees or their survivors by private businesses, federal state and local governments. They are paid inform of a guaranteed annuity to a retired or disabled employee.
b) Pension schemes
These are funds set up by co-operations e.g.(NSSF), labour unions, Government entity or other organization to pay the pension benefits to the retired workers.
They are generally classified into two, Benefits plans and Contributions plans
i) Benefits plans
This scheme provides a set amount of benefits to a pensioner. The employer in this plan tends to offer large pensions to higher paid employees and also assumes that the risk associated with pension funds will not be available.
Employees assume little risks because most funds are insured by the federal government to a certain limit.
ii) Contributions plans
Employer contributes a certain amount of money in employees name into the pension fund and makes no promises concerning the level of pension benefit that the employees will receive upon retirement.
Employers contribute an amount to the fund based on the employee’s salary and as a result, higher paid employees receive higher pensions than lower paid ones.
c) Retirement benefit authority (RBA)
In Kenya Pension schemes are regulated by retirement benefit Authority (RBA)
Objectives of RBA
1. Regulate and supervise the establishment of retirement benefit schemes.
2. Protect the investors of retirement benefit schemes.
3. Promote the development of the sector.
4. Advice the motion of finance on the national policies to be followed with regard to the retirement benefit and implement all government policies related there to
d) Components of pension schemes in Kenya
The pensions sub sector in Kenya consists of the following components:
a) The Public Service Pension Schemes, which cover Civil Servants, Teachers, members of the Disciplined Forces, Armed Forces, the Judiciary, the National Assembly and the President, are administered by the Pensions
Department of the Ministry of Finance and paid from the Consolidated Funds
b) The National Social Security Fund (NSSF) is a provident fund established in 1965 through an Act of Parliament. Its membership is mainly drawn from private sector companies, parastatals and public employees who
are not under the civil service pension scheme. There are an estimated 1.1 million workers contributing to the NSSF. The required rate of contribution is capped at 10% of the wages, which is divided equally between the employer
and the employee and capped at Kshs 400 per month.
c) Occupational retirement benefits schemes are tax-advantaged schemes created voluntarily by employers to cater for retirement benefits for their workers. These schemes have varying contribution rates and by law are
required to have an independent board of trustees, including member representatives, and independent fund managers and custodians.
d) Individual retirement benefits schemes are tax-advantaged schemes created by financial institutions and whose membership is open to members