For a dignified life in retirement

Member Information Booklet

CONTENTS

Preface 1

Definition of Important Terms 2

Management of the Scheme 4

The Structure of the Scheme 6

Scheme Investments 9

Benefits Payable 11

Member Communication 13

Scheme Contacts P.O. Box 1548 – 00600 Nairobi, KenyaTelephone: 020 3201020 Mobile 0711031020Website: www.kplcpensionfund.co.keEmail: Info@kplcpensionfund.co.keSMS: 30305Stima Plaza, Kolobot Road

DisclaimerThis information booklet is intended at providing you with a general overview of the Defined Contribution Scheme of the Kenya Power Lighting Company.

Please note that while every effort and due care has been taken to ensure that the information provided is correct and updated, no liability will be borne by the Board or the management for any errors or omissions in the handbook.

Should there be any conflict between the information provided herein and the Trust Deed & Rules, the later shall prevail. If you have any questions regarding this booklet, please get in touch with the Secretariat at the contacts here below.

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PREFACE The Kenya Power & Lighting Company Limited, Staff Retirement Benefits Scheme 2006 (“the Scheme”) was established on 1 July 2006, following the closure of the Defined Benefits (DB) Scheme on 30th June 2006.

As a Defined Contributions Scheme, the Scheme is managed by a Board of Trustees whose membership is divided equally between Sponsor nominated Trustees and Member nominated Trustees. The administrative functions of the Scheme are undertaken by the Secretariat of the Defined Benefits Scheme in an arrangement whereby the DC Scheme pays an administrative fee to the DB Scheme.

Scheme ObjectiveThe Scheme was established by the Sponsor with the main objective being to provide benefits to employees (members) upon retirement or to their dependents in the event of death in service. Besides this core objective, the Scheme does serve the following purposes:

• An incentive through which the employer can attract and retain employees. • A fund through which employees can save for their retirement.• A fund through which the employees can enjoy tax relief by virtue of being members

of the retirement benefits scheme. • A boost to the employer’s corporate image and public perception.

RegistrationThe Scheme is registered with the Retirement Benefits Authority (RBA) and approved under the Retirement Benefits Act 1997. In addition, the Scheme is also Registered by the Kenya Revenue Authority (KRA) as an exempt approved Scheme under the Income Act (CAP 470) - ‘The Income Tax (Retirement Benefits) Rules 1994’

Vision To be the best-in-class occupational pension scheme in Africa.

Mission To deliver value and quality of life in retirement to our members.

Core Values• Integrity• Accountability• Courteous Service• Stewardship

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DEFINITION OF IMPORTANT TERMS

ActuaryThis is an expert qualified to assess the funding and solvency levels for pension Schemes and insurance companies. An actuarial review is carried out every quarter to determine the interest rate to be credited to the members’ accounts.

AnnuityA fixed regular income to a retiree or pensioner purchased from his/her contribution account. A pensioner is a retired member of the Scheme who is in receipt of an annuity or pension as is commonly known.

BeneficiariesA beneficiary is the person or persons dependent on you and whom you nominate to receive your retirement benefit in the event of your death. Beneficiaries are people closely related to you and include your spouse and children.

Defined Contribution (DC) Scheme This is a benefits arrangement in which the contributions an employee and the employer makes are specified in the Scheme’s Trust Deed & Rules. In a DC Scheme, the benefits paid by the Scheme are determined by the level of contributions and the investment return earned on the contributions.

Early Retirement This is a withdrawal on or after attainment of age of 50 years but which is earlier than the normal retirement age of 60 years.

Eligible EmployeeThis is an employee of the Sponsor who has completed any probationary period of employment and has been confirmed in the employment as a permanent staff entitled to benefit from the pension scheme under the Trust Deed and Rules.

Entry DateThis is the commencement date and is the first day of the calendar month immediately following or coincident with your being eligible for membership according to the terms and conditions of your employment.

Member AccountThis is an account in the Scheme where your contributions and the contributions made by the Employer on your behalf, plus any investment income earned are credited. Your member account is the total value of assets held in the Scheme on your behalf.

Normal Retirement AgeThis means the first day of the month coincident with or following your sixtieth (60th) birthday where the exact date of birth is known. Where it is not known, the first day of January in the year in which your sixtieth (60th) birthday falls.

SalaryThis means your basic monthly salary as determined by the Sponsor in accordance with your terms and conditions of employment.

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SchemeThe Scheme is registered as The Kenya Power & Lighting Company Limited Staff Retirement Benefits Scheme 2006.

SponsorThis is a term used to describe the Founder of the Scheme, who is also the Employer. The Kenya Power & Lighting Company Ltd is the Sponsor of our Scheme.

TrusteeThis is an individual person or member of a board who has been given control or powers to manage assets of a Scheme with legal obligations to administer it solely for the purposes specified (in

a Trust Deed & Rules). Trustees are responsible for ensuring that the Scheme is properly administered in accordance with the Trust Deed & Rules and the applicable laws.

Trust Deed and RulesThese are the rules and regulations upon which the Scheme is constituted and managed. The Trust Deed & Rules sets out how the board is to operate, how the assets are to be administered and how the benefits are to be paid.

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The Board of TrusteesThe responsibility of ensuring that the Scheme is administered in accordance with the Trust Deed & Rules as well as in compliance with the relevant laws rests with the Board of Trustees. The specific roles and responsibilities of the Trustees include the following: 1. To manage and administer the

Scheme in the best interest of the members and the Sponsor.

2. To exercise prudence and integrity in managing and administering the assets of the Scheme.

3. Exercising care and utmost good faith in executing their Trusteeship duties.

4. Formulation of Scheme policies and supervising those to whom functions have been delegated.

5. Being aware of possible conflicts of interest and dealing with them appropriately.

6. To pay from or provide for the payment of such benefits as are prescribe by the Rules to the persons entitled thereto; and

7. To comply with the provisions of the Trust Deed & Rules, Income Tax Act, Retirement Benefits Act and any directions given by the Retirement Benefits Authority (RBA).

The current members of the Board of Trustees are;

Ernest Nadome (Chairman)Dr. Ben ChumoBeatrice MesoAbubakar Swaleh

Kenneth TarusKoskey KolilDavid SongokZilpa AyaraJohnstone Sakwa

The SecretariatThe Secretariat is responsible for among other things implementation of the policies formulated by the Board of Trustees. The Secretariat handles the day to day activities of the Scheme and provides liaison with the contracted professional services providers, regulating authorities and business partners. The duties and responsibilities of the Secretariat include the following: 1. Acting as the point of contact for the

Scheme. 2. Supporting the Board of Trustees in

the performance of its fiduciary and administrative roles.

3. Providing services to the in-service members, deferred members and pensioners.

4. Preparing required reports such as the annual accounts, quarterly administrative and investments reports.

5. Managing investments in liaison with contracted professional services providers.

6. Processing and paying pension benefits.

7. Ensuring compliance with the Scheme rules, income tax regulations, and RBA guidelines.

8. Handling communication both from and to the members.

MANAGEMENT OF THE SCHEME

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Professional Service ProvidersIn accordance with Retirement Benefits Act, the Trustees appoint the following specialists to assist with the management of the Scheme assets;

1) Fund Managers To manage Scheme’s assets invested in the equity market as well as in the government securities.

2) Custodians To hold custody of the assets invested in both the equity market and the government securities. The custodian maintains safe custody of the Scheme’s critical documents such as the Title Deeds and share certificates.

3) Auditors To check and verify the accuracy of financial records and the accounting practices of the Scheme. Auditors do also review and make recommendations on the Scheme’s operational processes and systems.

The Retirement Benefits Authority (RBA)Even though not directly involved in the management of the Scheme, the Retirement Benefits Authority is mandated under the Retirement Benefits Act 1997 to: • Regulate and supervise the

establishment and management of Retirement Benefits Schemes.

• Protect the interests of members of the sponsors of Retirement Benefits Schemes.

• Promote the development of the retirement benefits sector.

• Advise the Minister for Finance on the national policy to be followed with regard to the retirement Benefits industry.

• Implement all government policies relating thereto.

The Scheme structure

Board of Trustees

SecretariatFund Managers

Members (in-service members, deferred members)

Actuary

AuditorsCustodians

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THE STRUCTURE OF THE SCHEMEMember AccountEach member of the Scheme has an account into which contributions are received and investment interested credited when declared. Once the annual accounts report is prepared, the actuary analyses the report and advises the Trustees on the interest rate to declare based on the investment return (less expenses) achieved by the Scheme.

Your member account is invested by the Trustees with professional advice from investment managers and grows broadly in line with the returns achieved each year on the investments. This being the case, the value of your member account may fluctuate depending on the returns realized from investments. At retirement, the value of your member account determines the cash lump sum and monthly annuities payable.

Thus, the amount of your benefits at retirement will depend upon four basic factors;1. The level of contribution you make

to the Scheme.2. The contributions that the Employer

makes on your behalf.3. The investment returns credited to

your Member Account.4. The prevailing annuity rates at

retirement.

Scheme ConstitutionThe business of the Scheme, membership eligibility, benefits structure and the powers of the Trustees are set out in the Scheme’s Trust Deed & Rules. A copy of the Trust Deed and Rules may be examined at the Scheme’s Secretariat Office.

MembershipTo become a member of the Scheme, you must be at least eighteen years of age, employed on permanent terms, have completed any probationary period required and been confirmed into the employment of the Sponsor. You are also required to complete a membership form.

ContributionsEvery month a portion of your salary equal to 5% is deducted from your basic salary and remitted to the Scheme. Your employer also contributes 10% of your salary on your behalf. The two contributions are maintained in your member account but split into employee contributions and employers contributions. .

Example:If your basic salary is Kshs 50,000/-, you contribute Kshs 2,500/= (i.e. 5% x Kshs 50,000) while the employer’ contributes Kshs 5,000/= (ie 10% x 50,000) both of which are credited into your Scheme account.

Additional Voluntary Contributions (AVC)In addition to the 5% mandatory contribution, a member may on his own volition make an additional contribution of whatever amount he or she wishes. The reasons why one would wish to make an additional contribution include the following:

• To take advantage of the tax benefit provided on contributions.

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• To grow their member account for a better retirement package

Other benefits of voluntary contributions include:• It increases your retirement pension. • It increases your tax free lump sum on

your retirement benefits • It provides or increases dependants’

provisions on death in retirement. • It increases provision to dependants

in case of death in service • It provides additional security for you

and/or your dependants if you retire early

• Voluntary contribution gives the member the ability to have control over benefit levels, by choosing the pace and amount of additional saving for retirement.

TaxationAll aspects of the Scheme are subject to restrictions set out in the Retirement Benefits Act and the regulations made under the Act. In addition, the Income Tax Act imposes limits on the tax free contributions into the Scheme as well as benefits payable from pension schemes.

Tax on ContributionsYour contributions are deducted from your salary before tax is calculated, which means that full tax relief is granted without need to later claim it. Presently contributions (including AVC) not exceeding Kshs. 20,000/= are tax free. Contribution amounts exceeding this figure attract tax on the interest earned.

Tax on Pension Though post-employment benefits like pension, lump sum and surrender value from pension Schemes are treated as income, the tax regime applicable allows for a number of advantages.

Pension income of upto KShs.25,000 per month or KShs.300,000 p.a is tax free. Pensioners earning pension above KShs. 25,000 per month or KShs.300,000 p.a are taxed at the normal PAYE rates on the amount above this limit. However, pensioners aged above 65 years enjoy tax free pension irrespective of the level of the pension.

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Tax on Lump Sum BenefitsEffective 1st January 2010, the tax free cash lump sum is Kshs. 60,000.00 times the number of full years of service as a member of the Scheme subject to a maximum of KShs. 600,000. Lump sum payments above these limits are subject to tax at prescribed rates

a. On exit before retirement and with less than 15 years of membership in the Scheme, a member will get Kshs. 60,000.00 tax free per year of membership and the benefits will be taxed on the following tax bands;

b. On retirement and for members with more than 15 years of membership in the Scheme, a member will get Kshs. 60,000.00 tax free per year of membership and the benefits will be taxed on the following tax bands;

Transfers into the SchemeIf a member joins the Scheme and has benefits held in another registered Scheme, he or she may apply for a transfer of the benefits into the Scheme. The Scheme can accept transfers from other approved pension arrangements. Further details will be provided to anyone who is interested in making such a transfer.

Amount in Kshs. Tax Rate applicable

On The First 121,968.00

10%

On The Next 114,912.00

15%

On The Next 114,912.00

20%

On The Next 114,912.00

25%

On The Balance 30%

Amount in Kshs. Tax Rate applicable

On The First 400,000.00

10%

On The Next 400,000.00

15%

On The Next 400,000.00

20%

On The Next 400,000.00

25%

On The Balance 30%

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SCHEME INVESTMENTS In order for the Scheme to be able to continue discharging its noble responsibility of providing benefits to members and their dependants in the event of death, the Scheme prudently invests all monies received into various investments options that include;

1) Kenya Government SecuritiesA bond (or debt obligation) issued by a government authority, with a promise of repayment upon maturity that is backed by said government. Government securities are usually used to raise funds to pay for the government’s various expenses, including those related to infrastructure development projects. The securities may be in the form of treasury bills or bonds.

2) Equity MarketAlso known as the stock market, it is one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.

3) Real estate or properties.Investments under this class may include land, commercial buildings, and residential housing projects.

4) Unquoted Investments The Scheme has investments in private equities which are not listed in Nairobi Stock Exchange as an avenue for diversification.

5) Offshore InvestmentsThese are investments done outside the country.

6) Commercial Paper A two-party written instrument or document such as a check, draft, promissory note, or a certificate of deposit, that manifests the pledge or duty of one individual to pay money to another at an agreed stated terms.

7) Corporate BondsCorporate bonds are long-term debt instruments issued by companies to raise capital for expansion of business. They are an alternative to issuing new shares on the stock market (equity finance) and have a maturity date falling at least a year after their issue date. The Scheme investments are guided by the requirements of the RBA which issues investment limits on the various asset classes. The Scheme also has a duly prepared Investment Policy Statement which besides being aligned to the RBA regulations, lays out the investment strategy of the Scheme.

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RBA limits on investments per asset class.

Categories of Assets Maximum percentage of total assets of scheme

Cash and Demand Deposits 5%

Fixed Deposits, Time Deposits 30%

Listed Corporate Bonds 20%

Commercial Paper 10%

GovernmentSecurities and infrastructure bonds

90%, or 100% in the case of scheme receiving statutory contributions

Preference shares and ordinary shares ofcompanies listed in a securities exchange inthe East African Community

70%

Unlisted shares and equity instruments 5%

Offshore investments 15%

Immovable property 30%

Guaranteed Schemes 100%

Exchange traded derivatives contracts 5%

All listed Real Estate Investment Trusts 30%

Private Equity & Venture Capital 10%

Any other assets 10%

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BENEFITS PAYABLEThe Scheme provides various benefits depending on the circumstances under which an employee/member leaves employment. Under the current legislation, a retiring member is entitled to commuting a third of his/her member account into a lump sum payment and using the balance of two thirds (2/3) for procurement of a pension annuity from an insurance company. AVCs if part of the account, can be paid as a cash lump sum if a member so wishes

The following are the benefits payable for the different forms of exit from the Scheme

1. WithdrawalIf you withdraw from the Scheme following a resignation, termination of services or dismissal from service, you will be entitled to the following benefits subject to vesting rules:

• A lump sum payment made up of 100% of your employee contributions and 50% of the employers contribution paid with interest to the date of withdrawal or claim.

• A deferred pension benefit from the retained 50% of the employers contributions on attainment of retirement age.

However, 1. If you leave employment without

accessing your benefits, later on join another duly registered Scheme, you can request for a transfer of your both of your employee contributions and the employer’s contributions to the new Scheme.

2. If migrating out of the country, you will be entitled to a lump sum payment made up of both your employee contribution and employer’s contributions as at the date of withdrawal or claim.

2. Retirement on Medical Grounds If you retire on account of ill health, you will be entitled to:

• A return of a third of your member account paid as a lump sum.

• Pension procured from your preferred insurance company with the remaining two thirds of your member account.

3. Death in Service If you die while in active service of the employer, your beneficiaries will be entitled to:

• A lump sum payment equal to 4 times your annual basic salary as a group life insurance benefit

• A lump sum payment equal to your accumulated member account i.e. your contributions plus those of the employer and accrued interest.

4. Early Retirement The Rules of the Scheme allows for a member to retire with the employers consent on attainment of age 50 years.

If you retire before attainment of the normal retirement age of 60 years, you will be entitled to:

• A lump sum payment equal to a third of your member account

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• Pension procured from your preferred insurance company with the remaining two thirds of your member account. The level of the pension will be dependent on the prevailing rates for annuities.

For a member who is intending on retiring earlier than on attainment of normal retirement age, it is advisable that they consider making additional voluntary contributions so as to enhance their retirement package. 5. Normal Retirement If you retire on attainment of normal retirement age of 60 years (65 for members living with disability), , you will be entitled to the following benefits;

• A lump sum payment equal to a third of your member account.

• Pension procured from your preferred insurance company with the remaining two thirds of your

member account. The level of the pension will be dependent on the prevailing rates for annuities.

6. Death in Retirement Depending on the type of annuity purchased at retirement, your spouse (beneficiary) may be entitled to part of your pension. The level and length of the pension entitlement is dependent on the revisionary terms of the annuity purchased at retirement.

7. Death While A Deferred MemberIf you die after you have left active service of the employer but before attainment of retirement age of either 50 years or 60 years, your beneficiaries will be entitled to a lump sum payment equal to your deferred benefit retained in the Scheme.

In line with the Trust Deed & Rules as well as the RBA regulations, members are entitled to receiving various forms of communication from the Board of Trustees and the Scheme’s Secretariat.

Communication to the members may be realized through post mail, website or through suitable forums such as the member education seminars and the Annual General Meeting.

Benefits StatementsIn order to help you plan well for your retirement, the Scheme provides you with an accrued benefits statement. The benefits Statement is normally issued once a year to in-service and deferred members and shows your personal details, accumulated contributions including the interest, and the estimated value of the plan as at the statement date.

Annual ReportsThe management of the Scheme prepares audited annual accounts that provide an overview of the Scheme’s performance over the previous 12 months. The reports do also provide an update on other matters that are of importance to the membership and the stakeholders.

Annual General MeetingThe Scheme convenes an Annual General Meeting every year as required by the Retirement Benefits Act. The business of the Annual General Meeting includes Chairman’s report, any changes to the benefits or contribution structure of the Scheme, audited accounts, investments, remuneration of trustees and may include election of Trustees. .

MEMBER COMMUNICATION

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MEMBER COMMUNICATION Beneficiaries nomination Form This is a form that members use to indicate who their beneficiaries and dependants are. The form is also used when a member wishes to change, or cancel an existing beneficiary. Where a member’s declaration of nominees is found either inconsistent or incorrect, Trustees may exercise their discretion in deciding on who to be paid benefits following death of the member.

Certificate of Information This is a form that is sent out to the retirees and beneficiary pensioners requiring them to update their records. The form is normally sent out in September and the pensioners are expected to have provided back sought information by end of the year.

Member education Every year, the Secretariat with the support of the Board conducts a member education program targeted at the in-service members and the retirees. During these meetings, members get to be updated on the status and performance of the Scheme as well as on other issues of importance to them

and relevant to the Scheme.

Website The Fund has an active website, www.kplcpensionfund.co.ke from where members and the public can find past and current information about the Fund’s business activities. The website provides a one stop source of information on a wide range of issues including management, investments, benefits and service delivery. Additionally the

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site is a useful channel through which members can raise and forward their queries to the Fund. Links to other related websites are also available in the website.

The site is reviewed periodically in order to ensure relevance of the content to the business as well as to enhance its functionality and security of maintained information. In an effort to enhance service delivery to members, a self-service portable will soon be added.

SMS Short-codeThe Fund does also have an interactive SMS short-code 30305 through which members can query their individual account balances by simply sending the word “Balance” to the number. Responses with details of the member’s accumulated contributions are received within seconds of the query being received.

For a member to use this service, he or she must first register by providing their name, staff number and mobile number to the Secretariat. Currently, each SMS costs KShs.10/-.

Bulk SMS system The bulk SMS system is another technology based system that the Fund uses to communicate to the members and beneficiaries. Through the system, periodic updates, notifications and brief messages are sent to intended recipients via SMS.

Besides being a cost effective method, the bulk SMS system is a faster and reliable system of reaching targeted members.

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NOTES

Stima Plaza, Kolobot Road, ParklandsP.O. Box 1548 – 00600 Nairobi, KenyaTel: 020 3201020 Mobile: 0711031020SMS: 30305Email: info@kplcpensionfund.co.ke Website: www.kplcpensionfund.co.ke