Property-rich pension funds experience cash flow problems

Kenya Railways Staff Retirement Benefits Scheme pensioners protest outside Treasury, Nairobi, in March 2022. [Edward Kiplimo, Standard]

The cash flow crunch being faced by some of the country's property-rich pension schemes could deepen on the back of the legal hurdles when disposing of their real estate assets, collecting rent and delays by their sponsors to remit pension dues.

These schemes are closed to new members and do not receive new contributions. As such, they solely depend on the sale of properties and rent collections.

Several pension schemes are, therefore, struggling to pay retirees' dues on time, with accrued debts running into billions of shillings.

This has agonisingly worsened the livelihoods of senior citizens who were looking forward to the promise of a peaceful retirement after many years of service.

The delay in settlement of pension dues has been occasioned by tenants who have refused to move out or pay rent, protracted legal cases, lengthy government approval processes for the disposal of real estate, as well as the inability or in some cases the refusal of the schemes' sponsors to inject fresh cash to offset deficits experienced by these schemes.

Lack of consensus within the schemes' boards of trustees, delayed compensation by the government, and inadequate oversight by the sector regulator have also contributed to the worsening situation.

Members of the Kenya Railways Staff Retirement Benefits Scheme (KRSRBS) and the Local Authorities Provident Fund (Lapfund) have been amongst the hardest hit retirees.

Audited accounts

Analyses of their most recent audited accounts warn that the crisis could worsen if these challenges are not resolved swiftly.

The giant pension funds are either struggling to remit monthly dues to retirees on time or experiencing reduced investments despite controlling large chunks of prime properties in Kenya's major towns, including the capital, Nairobi,

The Kenya Railways Staff Retirement Benefits Scheme, where immovable properties account for more than 80 per cent of the scheme's investments, is notorious for not honouring monthly benefits which are as low as Sh3,000 per member.

With 82.54 per cent of its total investments being held in real estate properties as at the end of June 2022, the scheme's property assets are more than two folds above the regulatory cap of 30 per cent.

The scheme's property was valued at Sh31.94 billion at the end of June 2022, while its cash and cash equivalent position was a measly Sh38.31 million. The scheme is obligated to remit a monthly payout of over Sh60 million to its 7,300 members.

The scheme's independent auditors Ronald LLP has warned: "The scheme does not always have sufficient liquid funds to meet its immediate obligations, leading to pension arrears. High concentration of the scheme's assets in immovable property indicates a material uncertainty on the scheme's ability to meet its obligations when they fall due."

The Railways scheme has struggled to collect or raise rent from some of the tenants in prime locations such as Upper Hill, Muthurwa, Ngara, and Makongeni estates in Nairobi, pending conclusive determination of protracted court battles.

Some of the pending cases that involve alleged grabbing of property are more than two decades old, spiking up legal fees amidst largely stagnant and declining rental income.

Trustees have also been impeded from disposing of scheme investments, making improvements on existing properties to enhance rent collections, and developing both prime real estate and underdeveloped properties to fetch high rentals or for future sales.

The scheme's administrators allege the tenants are also notorious for exploiting court orders and proceedings of the rent tribunal to grant themselves rent holidays.

This, they say, has cast a spotlight on the judiciary to look into the plight of pension schemes that are seeking to liquidate some of their properties, as required by law, but are however plagued with decades-long cases accruing hefty legal fees, making payment of monthly pensions to their members an almost impossible task.

Prime land

The Railways scheme has also had it rough when trying to get full payment for prime land sale deals it entered into with the government for the construction of critical infrastructure projects.

These include the full payment of Sh7.9 billion for 18 acres acquired by the national government for the construction of the Green Park bus terminus as well as sections of the Nairobi Expressway, highlighting the need for the requisite government agencies to settle monies owed for land acquired from pension schemes.

The Lapfund scheme, on the other hand, is grappling with growing outstanding debts as a result of unremitted contributions from counties, some of which are historical; before the implementation of devolution.

"This causes liquidity and investment risks to Lapfund and if not resolved, may affect Lapfund's ability to meet its responsibility and the mission to refund members promptly," the Fund's administrators wrote in their latest report to members, adding that the board of directors of Laptrust continues to seek a permanent solution to this matter with the relevant stakeholders.

Lapfund's plan to streamline county governments' staff pension services by merging all retirement schemes suffered a blow in January this year when the courts quashed the County Governments Retirement Scheme Act, 2019.

Stakeholders

The courts ruled that the proponents of the law did not get views from key stakeholders such as widows, widowers, and dependants of deceased employees and pensioners who would have been directly affected should the law have been enforced.

The Telposta Pension Scheme has also been plagued with myriad court cases. A spot check by Real Estate shows some tenants have not paid rent for more than 15 years amid legal tussles.

As a result, the scheme continues to bear the brunt of low rent collection, as well as asset disposal challenges, consequently impacting its liquidity.

Analysts and sector players say the Retirements Benefits Authority (RBA) should support pension schemes, more so those that represent former and current civil servants, and were vested with large real-estate portfolios, to reduce their property holdings to within the approved stipulated thresholds.