AN OVERVIEW OF UMBRELLA PENSION SCHEMES 1. What is an umbrella scheme?

a pooled, single retirement fund (either pension or provident) consisting of unrelated participating employers under an umbrella arrangement. most small employers increasingly want to focus on their core business and do not want the burden of establishing and running a retirement fund for employees. The umbrella scheme has been a practical solution for many employers. The move to defined contribution funds and the emergence of small to medium enterprises are two of the reasons behind the significant migration from company specific retirement schemes to umbrella schemes.

2.

How does an umbrella schemes operate?

Currently umbrella schemes are not specifically defined in the Retirement Benefits Act (the Act). For administration purposes each scheme(employer specific) has its own set of special rules. However, the umbrella scheme is governed by an overall set of rules which usually provide for the: Collection of contributions; Definition of what constitutes fund membership;

 Withdrawal of participating employers providing a mechanism for the termination of the mini fund without having to liquidate the entire fund; Structuring of funding mechanisms; and Payment of death, withdrawal benefits. retrenchment, retirement and

The provider who has established the umbrella scheme will do the administration and set up the Board of Trustees at the umbrella scheme level.

3.

Advantages of umbrella schemes Provide a cost-effective and efficient solution to employee benefits in that activities are centralised while at the same time delegation of some duties to management committees allows for decisions that are in touch with the needs of the members of the various funds; Streamlined benefits and processes which translates into cheaper administration fees; Ensure that the employer (especially smaller enterprises) is not over-burdened with administration and regulation thus leaving employers with time to concentrate on their core business; and Outsourced trusteeship to a board of industry professionals, thereby removing these responsibilities and potential liabilities from the employer and members.

6.

Conclusion

It is generally accepted that well-run small and medium sized businesses are the most likely source of sustainable growth in Kenya in that they provide employment, create wealth and

opportunities, and ensure a better quality of life. And the climate has never been better for these businesses to flourish. They are finding that they can compete more effectively than in the past because the processes and systems that used to provide larger corporations with a competitive edge are now more affordable. However, in order to be truly competitive, a business must pursue excellence in every area of its operations. This means that in addition to adopting state-ofthe-art processes and systems, smaller enterprises have to ensure that they have the right people and skills. Employee benefits is one area where smaller companies are at a distinct disadvantage when competing with larger corporations. But today, small businesses are in a position to offer attractive benefits in a cost effective manner. As a packaged employee benefits arrangement, umbrella schemes offer employers one solution from a single service provider. The employer gets the best of both worlds, namely the expertise of experienced administrators with established infrastructures as well as the opportunity to provide competitive benefits to attract employees. In addition, umbrella schemes present a comprehensive and cost-effective benefit option for employers while removing them from exposure to regulatory risk. By outsourcing their employee benefit responsibilities, employers not only remove the hassle of registering and managing a scheme, but it also releases them from any obligations towards trustees. In the new environment of defined contribution schemes, employee benefits are also directly dependent on returns earned by the fund. Making the right investment decisions is therefore best left to the experts. In Umbrella schemes, professional trustees take this burden away from the employers and are responsible and accountable for any investment decisions.

Another huge advantage of umbrella schemes is that companies can take advantage of a larger risk pool and bigger claims experience which is particularly valuable when weighing up the spiralling costs associated with HIV/Aids. The high incidence of HIV/Aids has resulted in a dramatic rise in group assurance costs but an umbrella scheme can offer options to protect employers from exposure to this type of risk. On the whole, umbrella schemes would be the solution for employer groups with a small staff compliment and those employer groups who would like to engage into an umbrella arrangement and transfer certain of the trustee responsibilities to the overall (main) Board of Trustees of such umbrella schemes. Umbrella funds will continue to play an important role in the provision of retirement benefits.