This archive report was first published on 7 May 2020.
Published on May 7, 2020, a proposal by the Government to defer interest payments on its debt papers held by insurance firms in the form of pension funds has drawn sharp criticism from the powerful lobby Association of Kenya Insurers (AKI).
AKI warns that this proposal, which is planned to last for a period of between one and two years, will have serious implications on the pension and insurance industry as well as the financial sector as a whole.
According to AKI, any decision to defer interest payments requires the written approval of each scheme's board of Trustees, which may ultimately require approval by scheme members through Special General Meetings.
Insurance companies are service providers contracted by Scheme Trustees to invest and manage the scheme funds in a guaranteed fund. These funds belong to scheme members and insurance firms can only act on the express directive of the scheme trustees.
AKI submits that other investment vehicles such as properties and equity market investments cannot be relied on for payment of regular obligations because of their illiquid nature and volatility of equities market.
The lobby warns that a freeze of interest payments on instruments held by these pension schemes could cause them serious financial problems, with some being unable to meet their obligations of paying those members whose retirements fall due.
AKI adds that deferring interest on Government bonds will force insurance companies to immediately amend the Deposit Administration Policies to remove any form of guarantee on both the Capital and declared rate of return.
