List of Key Terms

A

Actuary: means a person who is a Fellow of the Institute of Actuaries in England, or the Faculty of Actuaries in Scotland, or the Canadian Institute of Actuaries, or the Society of Actuaries of the United States of America or the Institute of Actuaries of Japan or the Institute of Actuaries of Australia or a person holding such equivalent qualification as the Commissioner of Insurance may approve.

Administrator: means a person appointed by trustees to administer a scheme in accordance with such terms and conditions of service as may be specified in the instrument of appointment.

Authority: means the Retirement Benefits Authority.

Agency fees: means payments made to a person for acting on behalf of any other person or group of persons or on behalf of the Government and excludes any payments made by an agent on behalf of a principal when such payments are recoverable.

Approved issuer: means an insurer registered under the provisions of the Insurance Act or any other issuer approved in writing under the provisions of the Capital Markets Act or under any other written law.

Annuity contract: means a contract providing for the payment of an individual of a life annuity, and registered annuity contract means one which has been registered with the Commissioner in such manner as may be prescribed.

Asset class: refers to the different categories of investment a scheme under the retirements benefits regulator is permitted and their allowed class allocation thresholds in percentage. The asset classes include Real estate, Quoted equity, unquoted equity, Government Securities’, corporate bonds, Fixed term deposits, Cash and call demand deposits, long term loans, offshore equity, offshore fixed interest and collective investment schemes.

Augmentation: The provision of additional benefits offered to members of a DB scheme, normally where the cost is borne by the scheme and/or the employer.

B

Base tax regime: means to the base country taxation rules to be applied in the schemes taxation calculations.

Base currency: means to the base country currency.

Banks: financial institution licensed under the Banking Act and in which schemes’ accounts are operated or held.

C

Commissioner: means:

(i) The Commissioner-General appointed under section 11(1) of the Kenya Revenue Authority Act; or

(ii) With respect to powers or functions that have been delegated under section 11(4) of the Kenya Revenue Authority Act to another Commissioner, that other Commissioner.

Contribution holiday: means a period when an employer is not required to make contributions into a scheme fund.

Contribution: mode means to the frequency of contributions remittance. It can be monthly, quarterly, yearly.

Contributory scheme: refers to the type of schemes where both the employer and the employee contribute to a pension’s scheme. Non contributory refers to the type of schemes where only the sponsor contributes to a pension scheme.

Contribution remittance mode: can be in advance or in Arrears. In advance refers to contribution remitted in advance of the expected date. In arrears refers to contribution remitted on or after the expected date.

Custodian: means a company whose business includes taking responsibility for the safe custody of the funds, securities, financial instruments and documents of title of the assets of scheme funds.

Commuted Payment: the whole or part of a pension entitlement paid to a member on retirement subject to scheme rules and/or Income Tax Regulations.

Contributory Scheme: a retirement benefits scheme in which both the sponsor(s) and the members contribute to the fund.

Closed Scheme: a scheme which is closed to new members but which otherwise functions as a normal scheme for its continuing members.

Closure date as the upper bound for exits: refers to the application of a schemes closure date as the upper limit while calculating the member’s years in service in a scheme when calculating the member benefits.

D

Deal date: is the date of the agreement to acquire the government security.

Date of Commencement: means the financial year following the initial financial year of a scheme or the year with the first opening balance obtained from the initial closing balances.

Defined contribution scheme: means a scheme in which members’ and employers’ contributions are fixed either as a percentage of pensionable earnings or as a shilling amount, and a member’s retirement benefits has a value equal to those contributions, net of expenses including premiums paid for insurance of death or disability risks, accumulated in an individual account with investment return and any surpluses or deficits as determined by the trustees of the scheme.

Defined Benefit Scheme: A scheme in which benefits to be provided or paid are specific based on a specified criteria such as service, earnings etc.

Deferred pension: A benefit relating to the past service of members of an occupational pension scheme who are no longer active members but have not yet retired. The benefits are payable at retirement or earlier death.

Deferrement rate: this is the employer portion benefits that are payable to a member at retirement or earlier death; it is usually indicated by a percentage for example in Kenya 50% of the employer portion is accessible to the member at retirement age or at death.

Defined benefit provision: in respect of a registered fund, means the terms of the fund under which benefits in respect of each member of the fund are determined in any way other than that described in the definition of a defined contribution provision.

Defined benefit registered fund: means a registered fund that contains a defined benefit provision, whether or not it also contains a defined contribution provision.

Defined contribution provision: in respect of a registered fund, means terms of the fund –

(a) which provide for separate account to be maintained in respect of each member, to which are credited contributions made to the fund by, or in respect of, the member and any other amounts allocated to the member, and to which are charged payments in respect of the member; and

(b) Under which the only benefits in respect of a member are benefits determined solely with reference to, and provided by, the amount of the member's account.

Defined contribution registered fund: means a registered fund under which the benefits of a member are determined by a defined contribution provision and does not contain a defined benefit provision.

Declared interest rate: refers to the actual gain in percentage of the scheme contributions in a scheme investment; usually this gain id distributed the scheme members at the end of the year.

E

Existing scheme means a scheme which existed prior to the coming into force of these Regulations.

Excess contribution allocation mode: in a define contribution scheme, the commissioner of domestic tax exempts tax on all contributions that are less than Ksh 240,000 per annum or Ksh 20, 000 per month. This is referred to us the registered account or the tax-exempt account. The commissioner of taxes however taxes contributions that are over and above Ksh 240,000 per year or Ksh 20, 000 per month. This is referred to as the unregistered account or the non tax exempt account.

Effective date: the date at which the liabilities and assets of the scheme are measured for the purposes of a valuation.

Early retirement age: An age earlier than the normal retirement age at which time the scheme member can receive benefits.

F

Financial year — in relation to a scheme, means such accounting period as may be prescribed in the scheme rules Fund means the Retirement Benefits Authority Fund.

Facility: means a retirement benefits mortgage facility or house ownership loan arrangement. Guaranteed fund means an asset class: —

(i) Issued by an approved issuer, whereby the approved issuer guarantees the accumulated capital of the scheme fund or pooled fund together with the investment income thereof in accordance with the terms of the guaranteed fund contract entered into between the approved issuer and the scheme or pooled fund.

(ii) which is referred to as the Retirement Benefits Fund established as a statutory fund within the meaning of the provisions of the Insurance Act in which the capital of the scheme fund or pooled fund together with investment income thereof is guaranteed by the approved issuer in accordance with the terms of the policy of insurance issued to the scheme or pooled fund by the approved issuer.

G

Group life assurance: means life insurance policy covering several individuals a life insurance policy that covers a number of people, for example a group of employees at a company.

I

Interest: means interest payable in any manner in respect of the members’ contributions investments returns or other right.

Interest Formula: the interest formula used in calculating the interest to be distributed to the members contributions at in a scheme.

Incapacitated person: means a minor, or a person adjudged under any law, whether in Kenya or elsewhere, to be in a state of unsoundness of mind (however described).

Individual retirement fund: means a fund held in trust by a qualified institution for a resident individual for the purpose of receiving and investing funds in qualifying assets in order to provide pension benefits for such an individual or the surviving dependants of such an individual subject to the Income Tax (Retirement Benefit) Rules and registered individual retirement fund means an individual retirement fund where the trust deed for such a fund has been registered with the Commissioner.

Insurance: means a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

Investment profile: means a scheme is associated or attached to an investment asset class or classes in the investment module.

Insurer or insurance carrier means a company selling the insurance.

Issuer: is a legal entity that develops registers and sells securities for the purpose of financing its operations.

Investment name: This is the name of the government security; it bears the period of investment, year of commencement, the coupon rate and the maturity year. For example EXAMPLE BOND FXD1/2010/10 AT 8PCT TO 01.01.2020.

L

Levy: means the Retirement Benefits Levy.

Lump-sum: full and final payment of retirement benefit upon cessation of employment on attaining the normal retirement age.

Late retirement age: an age later than the normal retirement age at which time the scheme member can receive benefits.

M

Management or professional fee: means a payment made to a person, other than a payment made to an employee by his employer, as consideration for managerial, technical, agency, contractual, professional or consultancy services however calculated.

Manager: means a company whose business includes:

(i) Undertaking, pursuant to a contract or other arrangement, the management of the funds and other assets of a scheme fund for purposes of investment.

(ii) Providing consultancy services on the investment of scheme funds; or

(iii) Reporting or disseminating information concerning the assets available for investment of scheme funds. Member means a member of a retirement benefits scheme and includes a person entitled to or receiving a benefit under a retirement benefits scheme.

Member Classes this refers to the various classifications of employees of the same scheme, for example senior members of staff and junior staff. It affects retirement ages, contributions and benefits structure.

Multi-company: refers to a scheme that has multiple cost centers. There are individual payrolls for each centre and mostly the member contribution schedules are sent by post services.

Maker Checker Policy: refers to the enforcement of verification and validation policies to the respective user(s) with the validation rights for example a supervisor or manager.

Maturity date: This refers to the final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.

N

Number of full-year members in respect of a registered fund, means the sum of the periods of service in the year under the fund of all members of the fund, where the periods are expressed as fractions of a year.

National Social Security Fund: means the National Social Security Fund established under Section 3 of the National Social Security Fund Act.

Non-contributory Scheme: a retirement benefit scheme in which only the sponsor(s) contributes to the fund.

Normal retirement age: the expected retirement age, usually for pension purposes, as defined in the scheme rules.

O

Original issue discount: means the difference between the amount received on the final satisfaction or redemption of any debt, bond, loan, claim, obligation or other evidence of indebtedness, and the price paid on original issuance of the bond or evidence of indebtedness, and the price paid on original issuance of the bond or evidence of indebtedness or the sum originally loaned upon creation of the obligation, loan, claim or other obligation.

Open scheme: refers to an active scheme which serves its current members and also caters for any new members desiring to join; a running scheme which is open to new members to join.

P

Pension fund: means a fund for payment of pensions or other similar benefits to employees on retirement, or to the dependants of employees on the death of those employees and registered pension fund means one which has been registered with the Commissioner in such manner as may be prescribed.

Pensionable income: means -

(i) In relation to a member of a registered pension or provident fund or of an individual eligible to contribute to a registered individual retirement fund, the employment income or services rendered are subjected to deduction of tax on emoluments by the employer.

(ii) In the case of an individual eligible to contribute to a registered individual retirement fund, the gains or profits from business, earned as the sole proprietor or as a partner is subject to tax; Provided that where a loss from business is realized, the loss shall be deemed to be zero.

Provident fund: includes a fund or scheme for the payment of lump sums and other similar benefits, to employees when they leave employment or to the dependants of employees on the death of those employees but does not include a national provident fund or national social security fund established by the Government and registered provident fund means one which has been registered with the Commissioner in such manner as may be prescribed.

Provisional interest rate: refers to the arranged or existing interest for the present period to aid in member benefits calculation, to be changed later after the actual interest is declared.

Pooled fund: means a fund established by a limited liability company, other than an approved issuer, for purposes of pooling scheme funds for collective investment.

Public pension scheme: means a pension scheme that pays pensions or lump sums out of the Consolidated Fund. Paid up Scheme a scheme where contributions to the scheme have ceased e.g. due to winding up, merger/acquisition of sponsor(s).

Pension factor: means a fraction, percentage or proportion of a member’s pensionable emoluments which, when multiplied by all or part of his pensionable service, defines the amount of benefit payable to him under the scheme rules.

Pension purchase price: refers to the amount of the pension fund that is available to buy an annuity.

Pooled scheme investment: seeks to establish whether the pension scheme invested is in one container with other pension schemes.

R

Registered fund: means a registered pension fund or a registered provident fund.

Registered trust scheme: means a trust scheme for the provision of retirement annuities which has been registered with the Commissioner in such manner as may be prescribed.

Registered unit trust: means a unit trust registered by the Commissioner in such a manner as may be prescribed.

Retirement benefits scheme: means any scheme of arrangement (other than a contract for life assurance) whether established by a written law for the time being in force or by any other instrument, under which persons are entitled to benefits in the form of payments, determined by age, length of service, amount of earnings or otherwise and payable primarily upon retirement, or upon death, termination of service, or Retirement Benefits CAP. 197 7 Rev. 2010

Retirement annuity: means a retirement annuity payable under a registered annuity contract.

S

Sector: refers to the ideal industry/institution category of a scheme. For example: educational, industrial, and legal.

Security Government Type: This specifies if the government security is a Treasury bill or a Treasury bond.

Settlement date: is the date of actual government security acquisition.

Scheme: means a retirement benefits scheme.

Scheme fund: means the retirement benefits scheme fund.

Scheme rules: means the rules specifically governing the constitution and administration of a particular scheme.

Scheme Mode: can be single or umbrella; single mode refers to a scheme which has one sponsor and one trust deed. Umbrella mode refers to scheme which has multiple sponsors and one trust deed.

Scheme name: means the name of the retirement benefits scheme.

Scheme PIN: means the schemes personal identification number at the Revenue Body Authority.

Scheme type: means the three main retirement benefits scheme categories: the pension fund, the provident fund and the investment pool.

Soft Closed financial year in the FundMaster Xi system, this refers to a temporary closed financial year with the intention of opening a subsequent financial year account. The system administrator can however access the soft closed accounts for any transaction editing.

Sponsor: means a person who establishes a scheme.

Strategic investment allocation: refers to the asset investments allocation by the retirement benefits regulatory body, usually in percentage, occupational schemes can invest at a given stipulated period.

T

Target investment allocation: refers to the internal scheme asset investment allocation by the scheme trustees in reference to the strategic asset investment allocation as dictated by the retirement benefits regulatory body.

Tax: means the income tax charged under the income Tax Act.

Trust corporation: means a company incorporated under the Companies Act having a subscribed capital of not less than ten million shillings and which is for the time being empowered (by or under any written law, its charter, memorandum of association, deed of settlement or other instrument constituting it or defining its powers) to undertake trusts. Provided that such company does not, by any prospectus, circular, advertisements, or other documents issued by it or on its behalf, state or hold out that any liability attaches to the Public Trustee or to the Consolidated Fund in respect of any act or omission of the company when acting as an executor or administrator.

Trustee: means a trustee of a scheme fund and includes a trust corporation; these are the legal owners of a pension scheme.

V

Vested Benefit: any accrued benefit to which a member would be immediately entitled to on withdrawal from service of sponsor, from the scheme or at retirement.CAP. 197 Retirement Benefits 1 4 0 Rev. 2010.

Vesting Formula: the method of determining the benefits to be vested.