Kenya’s retirement benefits industry has continued to expand, with pension assets growing alongside increased awareness of the importance of retirement planning. However, the industry remains characterized by numerous retirement benefits schemes, some of which have relatively small membership bases and limited asset pools. This raises an important question: could consolidating smaller retirement benefits schemes through mergers create stronger, more efficient and sustainable retirement arrangements?
Pension fund consolidation involves combining two or more retirement benefits schemes into a single scheme to achieve operational efficiencies, improve investment capacity and strengthen governance. By pooling their assets, schemes can potentially benefit from economies of scale, as larger asset bases may provide access to a wider range of investment opportunities and improve their bargaining power when negotiating administration, audit and investment management fees. This could ultimately reduce operating costs and improve the net returns available to members.
Additionally, consolidation could strengthen investment diversification. Smaller schemes may face limitations in accessing certain asset classes due to their relatively low asset bases, investment costs and risk management requirements. Through consolidation, combined schemes can potentially achieve greater exposure to different asset classes, including infrastructure, private equity and real estate, subject to regulatory investment limits. A broader investment portfolio could enhance risk management and create opportunities for more sustainable long-term returns.
