EAST AFRICA COMMUNITY WORKS TOWARDS THE HARMONISATION OF PENSION LAWS

By Angela Waki Wednesday, August 06, 2014
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While the old Act granted the Minister powers to make regulations to govern any agreements providing for reciprocal arrangements with fund schemes in different countries, the new Act requires the NSSF Board of Trustees, in seemingly mandatory terms, to among other things, ensure that it coordinates with the social security scheme of the EAC member states where its members may reside to ensure that while the member works in that EAC member state, he is registered for membership in the member state’s social security scheme and can make the required contributions .

The NSSF Board is also required to coordinate with the other member states’ social security schemes to guarantee the exportability of that worker’s benefits, including the actual physical transmission of contributions and benefits to the Kenyan National Social Security Fund. These changes are a positive step in furthering the EAC’s ultimate objective of achieving a single market in which there is free movement of people, goods, and services. EAC member states continue to pursue wide-ranging institutional and legislative reforms and harmonisation within the region. These reforms cover different market aspects ranging from taxation, to competition and the financial markets.

The EAC prioritised the harmonisation of the taxation regimes of member states. This led to the enactment and adoption of the East African Community Customs Management Act, 2004 which, despite delayed action by member states, is slowly being implemented across the region. Now that the taxation aspect is underway, the next item on the EAC agenda seems to be the harmonisation of the financial sector, including pension regulation.

The World Bank, in conjunction with the EAC, is currently involved in the harmonisation of the EAC financial sector via a project known as the Financial Sector Development and Regionalisation Project (FSDRP), which aims to establish a foundation for financial sector integration among EAC member states. The first phase of the FSDRP, which was initially projected to be concluded in March, 2014, has been concerned with leveraging the establishment of a single market and the benefits of scale associated with regionalisation to provide a broader range of formal financial services or products to a more diversified client base.

The practical implementation of the project is to be done in the second phase which involves the harmonisation of financial laws and regulations. This will involve legal and regulatory harmonisation in banking and accounting, securities markets, insurance, pension, and investment funds - considered critical to achieve an effective functioning of a single market in financial services through EAC legislation.

There is a procurement plan for the second phase which sets out a schedule of activities including the integration of financial market structures, engaging consultants to advise on pension, insurance and capital markets systems, as well as conducting workshops throughout 2014 for stakeholders within the EAC member states. However, due to various delays in implementation of the project, the EAC Secretariat has negotiated a 15-month extension of phase 1, which will see the scheduled second phase of activities pushed back to 2015.

From the Kenyan end, the Directorate of Economic Affairs at the Ministry of East African Affairs, Commerce and Tourism has taken charge of coordinating Kenya’s harmonisation efforts with the EAC. However, at the moment the emphasis is on laying the groundwork for actual negotiation of the laws that will see the financial markets sector harmonised across the region.

No draft bills in the pension sector have yet been formulated as a direct consequence of the project, but Kenya continues to show its willingness to align laws with the EAC Treaty to create a single market. Indeed, at the Africa Pension Reforms Conference held in Nairobi late last year Kenya’s Retirement Benefits Authority (RBA) Chief Executive, Edward Odundo confirmed that the region is currently carrying out a comparative analysis on how pensions are managed so as to develop a road map of reforms. He also confirmed that Kenya will put in place a universal pension law in the next two years. A key issue anticipated to be addressed in the new law will be portability of pension schemes across the EAC economic bloc as part of the regional integration process.

The portability of social security benefits under the recently passed National Social Security Fund Act, 2013 is seen by many as a precursor to the regional cross-border portability of retirement benefits, and its implementation is keenly anticipated. The other EAC member states have not yet passed laws with similar provisions on portability of social security benefits. So far, there is a proposed Retirement Benefits Sector Liberalisation Bill, 2011 in Uganda which provides, among other things, that an employee may transfer his retirement benefits from one benefits scheme to any other licensed scheme in Uganda or the EAC. The new NSSF Act will come into force on 31st May 2014. However, any progress in achieving social security benefits portability will require the other EAC member states to pass similar national laws on social security or the enactment of a common EAC law to be adopted by all member states, to ensure unified implementation of pension laws within the EAC.