According to data from the Retirement Benefits Authority (RBA), the pension industry’s assets hit Sh 1.2 trillion in September, 2018, up from Sh 1.08 trillion in December 2017 and Sh 912.66 billion in 2016.
With limited investment vehicles for this money there arises a need to find other alternatives to invest the money in. The World Bank in 2018 urged local pension schemes to invest in public-private partnership (PPP) projects as the government moves to open infrastructure including roads, utility lines and public buildings as a new asset class for them to invest in.
Speaking to a Business Today reporter, former RBA Chief Executive Officer (CEO) Dr Edward Odundo supported this proposal saying that the money made from pension schemes is so much and can be beneficial in development as well.
“The accumulation of this cash is so large it can help more than basically the pensioner. It can be used in the energy sector, building of roads which will assist everybody. We do not need to borrow money to build roads,” Dr Odundo said in an exclusive interview with Business Today.
If a single road building project needs Sh 40 billion, then it would be easier to get the money from pension schemes than it would to borrow. Borrowing is a process that is also expensive. It would be easier to get the money from the pension scheme which will not feel a pinch of the money.
It only takes the support of the government, legislation, trustees and industry players to collaboratively design structures that will allow the private sector to invest in Kenya’s infrastructure needs. About 65% of pension schemes in the country are run by private organization.
The use of pension funds in infrastructure development has worked well in other countries and Kenyans are just waiting for the green light from the government before they inject pension funds to government projects. As of 2015, countries like Brazil, Chile, Colombia, Mexico, and Peru were investing about 2.6 percent of their total portfolios in infrastructure.
Dr Odundo, who is currently the Director at the School of Pension and Retirement Studies, added that allowing pension schemes to invest in infrastructure can help minimize looting of money during government projects.
“If they (pension schemes) are going to put their money in any corporate form, they will follow to make sure the money is paid back than if the money is borrowed abroad then no one will care,” Dr Odundo remarked.
“Pensioners will have an interest to know how the project has performed. If the money invested in infrastructure is got from loans then no one will be interested in knowing how the program will perform. At the end of the day the loan will just be paid from taxes,” he added.
Dr Odundo served as the CEO at RBA for 16 years and helped the pension industry grow from 50 million to a trillion. The pension industry is worth a lot of money, money that can be used in development.