COUNTY PENSION FUND - cpf.or.ke

Annual Report and Financial Statements 1

Delivering Sustained Value.

COUNTY PENSION FUND2019 | Integrated Report & Financial Statements

Annual Report and Financial Statements 2 Annual Report and Financial Statements 2

OUR VISION

Fulfilling Lives

OUR MISSION

To offer innovative retirement benefits that enhance the social-economic welfare of all the contributors and beneficiaries.

Innovativeness Team spirit Professionalism

Integrity Customer focus

CORE VALUES


Content

02 Vision & Mission03 Table of Contents04 Notice of the Annual General Meeting05 Trustees and Professional Advisors06 The Scheme at a Glance08 Message from the Corporate Administrator14 Corporate Administrator’s Management Team16 Corporate Governance Statement17 Report of the Trustees21 Statement of Trustees’ Responsibility22 Independent Auditors’ Report25 Statement of Changes in Net Assets Available for Benefits26 Statement of Net Assets Available for Benefits27 Statement of Cash Flows28 Notes to the Financial Statements



Notice of the Annual General Meeting

Notice is hereby given that the Annual General Meeting (A.G.M) of the County Pension Fund will take place vir-tually on Zoom and CPF’s social media pages, and will be streamed live on KBC TV on Friday 26th June, 2020 from 10.00 A.M to 1:00 P.M.

Agenda 1. Introduction and opening remarks2. Reading of the Notice of the meeting3. Reading and taking note of the minutes of the Annual General Meeting held on 27th June, 20194. Presentation of the Investment Manager’s report5. Presentation of the Scheme’s Custodian Report6. Presentation of the Financial Statements and Audited Accounts for year 20197. Presentation of the Administrator’s report8. Presentation of the Corporate Trustee’s report9. Remarks by Chief Guest10. Awards & Recognition11. Question and Answers12. Presentation by Stakeholders of the Scheme13. Vote of thanks

*Detailed invitations with modalities of joining the AGM will be sent to members and stakeholders.

By order of the Board

HOSEA KILI, OGW.Group Managing Director/CEOCPF Financial Services LtdThe scheme Corporate AdministratorFor & on behalf of County Pension Fund Corporate Trustee


CPF House, 7th floorHaile Selassie AvenueP O Box 28938, 00200Nairobi

Registered Office

Natbank Trustee and Investment Services LimitedHarambee Avenue,P.O Box 72866, 00200Nairobi

Corporate Trustee

CPF House, 7th floorHaile Selassie AvenueP.O Box 28938, 00200Nairobi

Administrators

Deloitte & ToucheCertified Public Accountants (Kenya)Deloitte Place, Waiyaki Way, MuthangariP.O Box 40092, 00100Nairobi

Auditors

Co-op Trust Investment Services Limited Co-operative Bank HouseP.O Box 43231, 00100Nairobi

Investment Managers

Equity Bank Limited Custody ServicesEquity Centre, Hospital Road P.O Box 75104, 00200 Nairobi

Custodians

NIC Bank Kenya PLCNIC House, 2nd Floor, Masaba Road Tel: 020 2888000 Nairobi

Kenya Commercial Bank LimitedMoi Avenue BranchP.O Box 30081, 00200Nairobi

Bankers

Mboya Wangongu & Waiyaki Advocates Lex ChambersMaji Mazuri Road, Off James Gichuru RoadLavington NairobiP O Box 74041 - 00200Nairobi

Lawyers

J. M Njenga & Co AdvocatesTeleposta Towers, 5th FloorKenyatta Avenue,P.O Box 1297 -00100Nairobi.

Kiplagat & Co. AdvocatesNSSF Building, 11th FloorBlock A, Eastern WingP O Box 3642, 00200Nairobi

Trustees and Profesional Advisors


The County Pension Fund is an employer-sponsored Defined Contribution Scheme. The scheme is es-tablished under the Retirement Benefits Authority (RBA) Act and is registered with the Retirement Benefits Authority. The scheme’s primary purpose is to provide retirement benefits to its members, based on the contributions received from both employer and employee. The value of the ultimate ben-efits payable from the County Pension Fund depends on the amount of contributions made coupled with the investment return achieved.

Employees contribute to the Fund at a rate of 12% of their pensionable salaries while their respective employers contribute at a rate of 15% of the employees’ pensionable salaries.

The County Pension Fund was incorporated in response to Treasury Circular No. 18/2010 of November, 2010 which required all public sector retirement schemes to close Defined Benefits (DB) schemes to persons aged 45 and below and establish Defined Contribution (DC) schemes in their place. To this end, the scheme was registered by the RBA, as Laptrust Umbrella Retirement Fund Certificate No. 01305 of 27th May 2011 and started operations on 1st July, 2011. It was later, through a stakeholder consultative process renamed to County Pension Fund under certificate number 01670 of 14th June 2019.

Pension Contribution

Employees 12% of their pensionable salaries

Employers 15% of the employees’ pensionable salaries

Change of nameCertificate No. 01670 of 14th June 2019

The scheme is now registered asTHE COUNTY PENSION FUND


The County Pension Fund: The Scheme at a Glance

Active membership

7,319 Members 31st December, 2019

Salih Fund43,756 Members 31st December, 2019

Conventional Fund

Fund value

12.10 Billion Fund value for the year

ended 31st December, 201951,075 Members

31st December, 2019

Total Active membership


“Success is not final; failure is not fatal: It is the courage to continue that counts.”- Winston S. Churchill



Message From The Corporate Administrator

It is my distinct pleasure to once more present the 2019 Administrators’ report and an overview of the performance and operations of the County

Pension Fund for the year ended 31 December 2019. Since commencing our current strategy period in 2018, the scheme has and continues

to deliver sustained value for its members and stakeholders.

Domestic Economic context

In 2019, the Country’s Gross Domestic Prod-uct (GDP) is estimated to have expanded by

5.4% compared to a growth of 6.3% in 2018. According to the Kenya National Bureau of

Statistics (KNBS), the growth was spread across all sectors of the economy but was

more pronounced in service-oriented sectors. Despite most sectors recording decelerated

growths, the economy was supported by ac-celerated growths in Financial and Insurance

services (6.6%) and Real Estate activities (5.3%). Nominal GDP increased from Kshs.

8,892.1 billion in 2018 to Kshs. 9,740.4 billion in 2019.



Performance Highlights

In the year under review, the fund realized a continued growth in membership as well as the fund value.

The fund’s management has remained compliant and consistent with regulatory and market requirements, maintaining an efficient structure of the fund’s invest-ment portfolio consistent with the fund’s risk profile, regulatory and market requirements of its operating environment.

The fund’s key highlights in the year under review are:

• The Fund value for the year ended 31st December, 2019 stood at Kshs.12.10 Billion; up from Kshs. 6.87 Billion in the year ended 31st December, 2018. Net fund value position for the year ended 31st Decem-ber, 2019 for Salih, a segregated fund within the County Pension Fund, stood at Kshs. 1.7 Billion up from Kshs. 983.54 Million in the year ended 2018.

• Active membership of the Fund increased from 36,125 members in the year ended 31st December, 2018 to 43,756 as at 31st December, 2019. The Salih segregated fund membership, as at 31st December 2019 stood at 7,319 up from 6,066 in the year ended 2018.

• The County Pension Fund has 160 sponsors com-prising County Governments and Associated Or-ganizations as well as private organizations who choose to join the umbrella fund for their employ-ees’ benefits.

Timely-payout of benefits and consistently delivering outstanding returns is key to the growth and sustain-ability of the fund. To this end, the pension scheme’s operation model is tailored to contribute to both the economic and social development for all members and stakeholders. In the year under review, the fund maintained its growth trajectory with a corresponding growth in net assets and net return on investments.s.

The fund’s investment philosophy is guided by val-ue-based fundamental investment approach. As such, we place emphasis on active management, application of prudent risk control and consistency in returns. Over the years, the fund has strived to ensure that all assets

are prudently and professionally managed in order to realize optimal returns to the fund’s members without compromising compliance to the provisions of the reg-ulating authorities.

The consistent growth trajectory is therefore attribut-able to a mix of prudent investment and growth em-anating from trust earned from the scheme’s mem-bership and stakeholders. In the year ended 2019, the fund focused on the use of digital communication and marketing platforms to create awareness and enroll new entrants to the scheme. Additionally, the admin-istrator’s keen and intentional focus on the growth of non-captive business was a key contributor for the ex-ponential growth in the fund’s membership. This was backed-up by the deployment of good customer ser-vice and on-boarding practices. This is best illustrated by the fact that the administrator emerged second runners-up award in the Customer Orientation and Marketing category in the Company of the Year Awards (COYA) 2019.

Message From The Corporate Administrator (continued)

Fund value

12.10 Billion Fund value for the year ended 31st December, 2019

6.87 Billion Fund value for the year ended 31st December, 2018


Total Active membership



Corporate Citizenship and Sustainability

A good long-term business strategy cannot be devoid of an embedded sustainability strategy. To maximize long-term value, the fund endeavours to continuously evaluate Environmental, Social and Governance (ESG) risks and opportunities. To this end, the County Pen-sion Fund aspires to be a socially responsible corporate entity and as such, strives to meet all legal, ethical and economic responsibilities to its members, stakeholders and society. The scheme has adopted a socially respon-sible orientation based on ESG practices.

The fund is now extending beyond traditional com-munity investment programs to more innovative ap-proaches in its operations that seek to create social impact while at the same time meeting its economic objectives. As such, we are actively adapting and de-veloping products and services to deliver positive so-cial and environmental impact. We are rising to the sustainability challenges by putting in place measures that quantitatively measure the social, environmental and economic impact of our supply chain and opera-tions.

Our aim is to produce higher standards of living and quality of life for the communities that are involved with the scheme and still maintain a good return on investments for our members. Responsible operations and practices are integral to the scheme’s philosophy and approach. We believe that managing our assets in a way that creates sustainable value not only does good for the fund’s bottom line but also protects the planet.

As a member of the United Nations Global Compact, we actively took steps in the year under review to dramati-cally reduce carbon emissions in our operating environ-ment. To this end, we installed an energy management system to manage and improve on the organization’s energy performance. This enabled the administrator to reduce operating costs by reducing the energy and car-bon footprint from its operations; and by developing a culture of continuous improvement, through monitor-ing, setting targets, training and communication.

Additionally, in the year ended 2019; we developed an energy management policy that will play a critical role in our plan to maximize profitability, strengthen our competitive position, and provide customers with the

highest quality products and energy efficient solutions.

In the same vein, our Corporate Social Responsibility (CSR) policy identifies environmental conservation as one of three core pillars. In line with the CSR policy, the scheme was involved in Community support and development activities in the year under review, aimed at conserving the environment. The scheme partnered with numerous stakeholders to amalgamate efforts to-wards the conservation of water towers in Kenya. This saw the fund plan over 50,000 tree seedlings in Ma-lindi, Nakuru and Kakamega during the World Water Day celebrations. The fund, additionally, supported the ‘Feed the Hungry’ drive in Turkana that fed and granted support to over 100 families that were adversely affect-ed by drought in the year under review.

Risk Management Status

The Administrator has put in place a robust En-terprise Risk Management Framework (ERMF) de-signed to identify and manage all the risks within the agreed risk appetite thresholds, which may affect the Scheme’s operations and ability to achieve its strate-gic objectives. Management has benchmarked its ERM framework against the Committee of Sponsoring Or-ganization (COSO) Enterprise Risk Management- Inte-grated Framework and ISO 31000:2018 Risk Manage-ment Guidelines. The Board evaluates risks based on the following broad categories:

Governance & Strategy Risks – these risks may ham-per the Scheme’s ability to achieve its strategic objec-tives and eventually its ability to continue operating in the long run. These risks impact the Members and Stakeholders directly if not well managed.

Funding & Investment Risks– these risks involve the Scheme’s ability to harness resources to run its opera-tions as well as the impact of market volatility on the Scheme’s investments.

Operational & Infrastructure Risks - These risks re-late to the effectiveness and efficiency of the Schemes operations. The Schemes operational effectiveness and efficiency is a three faceted approach of people, pro-cesses and technology. A failure in any of these poses a grave risk to the Scheme’s ability to achieve its strate-gic objectives.




Risk Management Status (continued)

Compliance & Regulatory Risks – these risks relate to possible non- adherence to laws and regulations the Scheme is subject to. The County Pension Fund is regu-lated by the Retirement Benefits Authority among oth-er regulators and has made effort to ensure it complies with all statutory and regulatory requirements.

Risk Status

During the year under review, certain challenges were experienced. However due to the mature risk manage-ment framework put in place, and the proactive nature of its management, the Scheme mitigated effectively against the major risks. The outstanding pension ob-ligation to the Scheme continues to grow as a result of delays and non-remittances of pension contribu-tions by various sponsors. This poses liquidity and in-vestment risks to the Scheme as it’s not able to invest the same in a timely manner for members benefit. The Trustees together with the Administrator are seeking for a permanent solutions through engagement with various stakeholders and policy makers.

The Scheme continues to manage risks proactively and the administrator provides quarterly risk mitigation re-ports for discussion at its Board meetings.

Statement on Compliance with Laws and Regu-lations

The Scheme is primarily regulated by the Retirement Benefits Authority. Its operations however have a bear-ing on other statutory bodies for which compliance is key; and these include the Kenya Revenue Authority and the Unclaimed Financial Assets Authority. Dur-ing the year under review, the Scheme remained fully compliant with the various laws and regulations. This was achieved through an active compliance framework that ensures continuous monitoring of all compliance requirements. Compliance audits are conducted on a quarterly basis and the results shared with the Cor-porate Trustees during the quarterly board meetings. Quarterly returns as required by the various regulators were made on time.

The Scheme undertakes to remain compliant and in close communication with the various Regulators in future.

Future Outlook

The Coronavirus (COVID-19) has spread across the globe affecting social life globally and creating shocks in the economies. In Kenya, the potential spread of the disease is likely to affect the well-being of citizens, and an increase in the number of poor and vulnerable households is imminent.

The performance of the fund will rely heavily on the country’s response to the disruptions caused by the Covid-19 pandemic. Most of the economic activities have so far been slowed down by restrictions result-ing from containment and cessation of movement in sections of the population, the nationwide curfew and stoppage of international passenger travel. The first case of Covid-19 in the country was confirmed on the 12th March 2020 and since then, the government con-tinues to implement a raft of precautionary and pre-ventives measures to counter the impact of pandemic on the population as well as socio-economic aspects.

In spite of these macro-economic factors, I remain op-timistic in our commitment to drive the fund’s ambi-tious growth objectives, with a key focus on member-ship growth in the current year. Adjusting our strategic approach appropriately, while embracing innovation, will drive the implementation of the 2018-2020 stra-tegic plan; whilst maintaining strong stakeholder ties coupled with informed resource allocation will ensure that the fund meets its strategic growth objectives.

I remain confident in our ability to deliver to promise, steered by an effective leadership team and dedicated staff who are committed to driving long term sustain-able growth.



Acknowledgements

I wish to take this opportunity to thank the fund’s sponsors and members for their consistent support and trust. In the same vein, I wish to offer my sincere appreciation to the regulator and policy makers at both levels of Gov-ernment for their collaborative spirit and support.

Finally I wish to recognize the long-standing efforts of all of the scheme’s professional service providers; including the hard working and dedicated CPF staff, whose commitment has continued to ensure the smooth running of the scheme. Thank you for lending your skills and expertise to the prosperity of the Fund over the past year.

HOSEA KILI, OGW.Group Managing Director / CEOCPF Financial Services Limited (Corporate Administrator)


“Success is where preparation and opportunity meet.”- Bobby Unser


JOSEPH RONO Director - Strategy, Finance and

Investments

Joseph Rono is a Finance and Investments professional with over 15 years’ experience in private and public sector within the East African region. His key areas of expertise include Strategy, finance and In-vestments with a special interest in ICT, Strategy formulation and imple-mentation.

Mr. Rono is a recipient of numerous awards including “Chief Investment Of-ficer of the Year” Award at the 2017 Pension Awards. He is a Certified Pub-lic Accountant (CPA K) and holds a BSc. Mathematics and Computer from Jomo Kenyatta University of Agriculture & Technology (JKUAT) and an MBA in Finance from the University of Nairobi.

Mr. Rono was the recipient of the “Manager of the Year” award at the 2019 Company of the Year Awards.

HOSEA KILI, OGWGroup Managing Director/ CEO

An advocate of the High Court of Kenya, Mr. Kili holds a Masters of Business Administration from the Management College of Southern Africa (MANCOSA). He is a Fellow of the Institute of Certified Public Secretaries of Kenya (ICPSK); a

Fellow Member of Kenya Institute of Management (KIM) and an active member of the Law Society of Kenya (LSK).

Mr Kili is a Council member and the current chairman of the East and Central Africa Social Security Association (ECASSA). He is a Non-Executive Director at the Nairobi Securities Exchange (NSE) and the current president, Association of Pension Trustees Administrators of Kenya (APTAK).

A recipient of numerous commendations, Mr. Kili was awarded the Presidential Order of Grand Warrior of Kenya in December 2011 and the 2nd Runners up CEO of the Year at the COYA Awards 2012. He was also recognized as the Personality of the Year at the 2017 Pension Awards that sought to award excellence in innovation and service provision to improve the outcomes of both pension funds as well as members. Mr. Kili was also recognized as the 2nd Runners up in the ‘CEO of the Year’ category during the 2017 and 2018 Champions of Governance Awards.

Mr. Kili currently serves as a member of the ISSA bureau and a member of the Finance Committee of the International Social Security Association (ISSA) following his election to this post in 2019.

IRENE MBONGE Group Head of Corporate Communication

and Public Affairs

Irene is a Chartered Public Relations practitioner with over 10 years’ experience in Corporate Communication and Public Affairs. She holds an MBA in Marketing from the University of Nairobi and a post graduate diploma in Public Relations from the Chartered Institute of Public Relations (UK). Irene is a full member of the Public Relation Society of Kenya (PRSK), a Standing Committee member of the East and Central Africa Social Security Association (ECASSA) and serves as a Board member at the ECASSA Institute of Social Protection (EISP).

GEORGE OKIOMADirector, Operations and Marketing

George is a Senior Pensions Professional with over 15 years’ experience in the establishment, management

and administration of Pension Schemes in Kenya and in the Africa region.

George has gained considerable experience in pensions particularly in pro-jects involving diagnostic reviews, developing pension policies, developing strategic restructuring plans, remuneration setting, administration and im-plementation of key pension policies.

He is a Member of the Institute of Actuaries (UK) and holds a BSc. Degree in Mathematics & Computer Science from the Jomo Kenyatta University of Agriculture & Technology (JKUAT) and an MSc in Actuarial Science from the University of Nairobi.

ISAAC MITEIGroup Head of Legal & Company Secretary

An Advocate of the High Court of Kenya, Isaac Mitei has over 12 years’ experience in Legal practice.

He holds an Honors Law Degree from Moi University and a Diploma in Law from the Kenya School of Law. Mr. Mitei is a member of the Law Society of Kenya (LSK) and the Institute of Certified Secretaries of Kenya (ICPSK).

Administrator’s Management Team



LUCY JERONOGroup Head of Human Resource

& Administration

Lucy holds an MBA in Human Resource Manage-ment from the University of Nairobi, a Bachelor of Arts De-

gree (Sociology & Economics Option) from Catholic University of Eastern Africa and a Higher National Diploma in Human Resource Management from the Institute of Human Resource Management (IHRM). She has over 13 years of comprehensive Human Resource Management experience and Administration. She is a full member of the Institute of Human Resource Management (IHRM) and also a Full Member of Kenya Institute of Man-agement (KIM).

SOSPETER THIGAGroup Head of Risk and Compliance

Sospeter holds an MBA in Strategic Planning and a BSc. Economics & Sociology from the University of

Nairobi. He is a Certified Public Accountant of Kenya (CPA K), a member of the Institute of Certified Public Accountants of Kenya (ICPAK), a certified Risk Analyst (CRA), a certified Information System Auditor (CISA) and a Certified Change Management Practitioner (Prosci).

CORNELIUS NDUMAIGroup Head of Internal Audit

Mr. Ndumai is a Certified Public Accountant, an active Member of the Institute of Certified

Public Accountants of Kenya (ICPAK), the Institute of Internal Auditors of Kenya (IIA-K) and Information Systems Audit and Control Association (ISACA). He holds a Bachelor’s degree in Adminis-tration (Accounting), an MBA in Finance from the University of Nairobi, and a Post-graduate Diploma in Banking & Finance. Mr. Ndumai is an accomplished Financial and Audit professional and brings on board over twelve (12) years of expertise.

TONY OLANGDirector - ICT Services

Mr. Olang, in a career spanning over 19 years in financial services, ICT and renewable energy sec-

tor has contributed significantly towards the adoption of technology for business processes in the region and more so for the CPF Group.

He holds an MSc in information System Security from the Universidad Empresarial de Costa Rica, a Postgraduate Diploma in Information Sys-tems Security from the Cambridge Association of Managers as well as a BSc. In Computing from the University of Portsmouth.

JONATHAN MARUCHADirector - Insurance Services

Mr. Marucha holds an MBA in Strategic Man-agement, Bachelor of Commerce (Insurance), a

Diploma in Insurance from the Chartered Insurance In-stitute (CII) and a Certificate in Life Assurance from LIC India. He is a member of the Insurance Institute of Kenya (IIK), Insurance Brokers of Kenya (A.I.B.K) and a trained director by the Center for Corporate Gov-ernance.

Jonathan is a multi-skilled insurance professional with over 13 years’ experience in business development, portfolio management, claims management, insurance regulatory compliance, risk assessment and valuation.

SHAFANA RAJANIGeneral Manager, Property Services

Shafana has over 15 years of professional busi-ness management experience with 9 years in the

real estate industry having served with an internation-al Real Estate company previously. She holds a BSc. Degree in Interna-tional Business Administration and a MA Degree in International Rela-tions both from the United States International University – Africa. She is currently pursuing a PHD Program in Business Management. Shafana is a Member of Marketing Society of Kenya.


Administrator’s Management Team (continued)


County Pension Fund is a Defined Contributions Pen-sion Scheme which was registered by the Retirement Benefits Authority on 27th May, 2011 to provide retire-ment benefits for the staff of the County Governments, Associated Organizations, and Approved Reciprocat-ing Bodies as provided under the Fund’s rules.

The County Pension Fund was established pursuant to the directive to the public sector retirement schemes under Treasury Circular No.18/2010 of November, 2010 which required all public sector retirement schemes to convert their Defined Benefits (DB) Schemes to Defined Contributions (DC) Schemes with the option of retain-ing persons with less than 5 years to attain retirement age in the Defined Benefits (DB) Schemes.

The Corporate Trustee

Natbank Trustees & Investment Services Limited, a sub-sidiary of National Bank National Bank duly registered with the Retirement Benefits Authority as corporate trustees is the appointed Corporate Trustee for County Pension Fund. Natbank Trustees & Investment Services Ltd is also licensed by the Capital Markets Authority as a Fund Manager. The Corporate Trustee is guided by the Trust Deed and Rules for the Scheme as amended from time to time and the Retirement Benefits Act and the Regulations made thereunder.

Corporate Trustee’s Responsibilities

The primary role of the Corporate Trustee is to ensure that the Fund grows exponentially and continues to prosper for the benefit of members, customers, em-ployees, sponsors and other stakeholders. The Cor-porate Trustee is responsible for policy formulation, investment of Scheme funds, Scheme administration, and payment of benefits to persons entitled to such benefits under the scheme rules, protection of the property and assets of the Scheme and performance of such other duties as may be necessary for the due and faithful performance of the Scheme’s obligations. The Corporate Trustee meets with the Scheme Administra-tor on a quarterly basis and on such other times as may be rendered necessary, to consider all matters relating to the overall control, business performance and strat-egy of the Scheme and for succession planning.

Corporate Trustee’s Independence

The Corporate Trustee has established structures and standards to enable it discharge its duties inde-pendently and free from any unlawful directions, un-due influence or any other form of compulsion. These standards are fundamentally premised on the require-ment that the Corporate Trustee should be independ-ent of the Administrator and free from any business or other relationship that could adversely interfere with their objectivity and the exercise of their independent judgment. The Corporate Trustee and the Scheme Cor-porate Administrator are mutually interdependent but their roles and responsibilities are distinct.

On the one hand, the Scheme Corporate Administra-tor takes responsibility for the effective and efficient management of the Scheme, ensures that Corporate Trustee’s meetings are convened as per the approved Annual Trustee Calendar, that the resolutions of the Corporate Trustee are implemented as guided and /or approved by the Corporate Trustee and accounts to the Corporate Trustee. On the other hand, the Corporate Trustee evaluates the performance of the Scheme Cor-porate Administrator to ensure this is in tandem with the principal objectives of the Scheme.

Information and Professional Development

The Corporate Trustee is devoted to progressively monitor and acquaint itself with key business develop-ments in order to maintain and enhance its effective-ness. From time to time the Corporate Trustee receives presentations from the Fund Managers, Custodians, Actuary and Legal Advisors on matters of significance. The corporate strategy, financial plans, including budg-ets and forecasts are regularly discussed at Corporate Trustee meetings. The Corporate Trustee is confident that it has the necessary skill, knowledge, and experi-ence to perform the functions required of a Trustee.

For and on Behalf of Corporate TrusteeNatbank Trustees and Investments Services Ltd

Corporate Governance Statement


The Trustees present their report together with the audited financial statements for the year ended 31 December 2019.

Establishment, nature and purpose of the Fund

The County Pension Fund was established under the Retirement Benefits Authority (RBA) Act and was registered with the Retirement Benefits Authority.

The Fund is a Defined Contributions Scheme and provides, under the rules of the Fund, retirement benefits for the staff of local authorities, associated organizations, and approved reciprocating bodies as provided in the Fund’s rules.

It is a tax exempt approved Fund under the Income Tax Act.

The principal objective of the Fund is to provide pension and other retirement benefits to employees of the spon-sors and other individual and associated members of the Fund upon their retirement from service and relief for the dependents of the deceased employees.

During the year ended 2019, the promoters of County Pension Fund registered with Retirement Benefit Authority a new product called Salih in the year 2019 as per the RBA rules and regulations and the trust guidelines to cater for members who will prefer to invest in Sharia compliant products. The report for 2019 therefore presents both the conventional fund and the salih fund.

Results

The results for the Fund’s for the year ended 31 December 2019 are analysed as follows:

2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

Increase in net asset during the year 5,228,075 2,122,206 789,973 983,540

Report Of The Trustees


Membership

The Fund has 160 sponsors which comprise 43,756 employees. Employees contribute to the Fund at the rate of 12% of their pensionable salaries while the employers contribute at a rate of 15% of the employees’ pensionable salaries.

The Fund’s membership was as follows:

2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

At beginning of the year 36,125 32,382 6,066 -

New members 7,826 3,907 1,318 6,068

Leavers (195) (164) (65) (2)

At 31 December 43,756 36,125 7,319 6,066

Incorporation

County Pension Fund was formed in response to Treasury Circular No. 18/2010 of November, 2010 which requires all public sector retirement schemes to close Defined Benefits (DB) schemes to persons aged 45 and below and establish Defined Contribution (DC) schemes.

The scheme was registered by the RBA, Certificate No. 01305 of 27 May 2011 and started operations on 1 July, 2015.

Contributions

The contribution rates are expressed as a percentage of the employees’ basic salary and housing allowance. Rates in use for the year 31 December 2019 and 31 December 2018 were:

Employer 15 %

Employee 12 %

27 %

Report Of The Trustees (continued)


Assets management

The investment managers are responsible for the day to day management of investment funds. However, the overall responsibility for investment and performance lies with the Trustees.

The Fund’s net assets position as at 31 December 2019 was as follows:

2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

Categories of assets

Cash & cash equivalents 107,473 288,949 33,847 39

Fixed deposits 807,138 742,871 1,463,897 767,632

Call deposits 153,902 72,580 - 199,457

Treasury bonds 4,917,580 2,488,112 - -

Quoted investments 2,100,483 1,188,079 8,000 -

Corporate bonds 14,042 33,079 - -

Treasury bills 1,980,637 647,372 - -

Investment property 461,887 461,887 - -

Receivables 780,899 926,944 179,639 22,239

Due from related parties 298,216 110,405 93,673 -

Other receivables 646,537 - - -

Payables (165,330) (84,889) 5,542 (5,827)

Total assets 12,103,464 6,875,389 1,773,514 983,540

We confirm that there is no self-investment, nor have any Fund assets been used as security or collateral on be-half of the employer or any connected business or individual.



Assets management (continued)

2019Shs’000

Consolidated Fund

% RBA%maximum

requirement

2018Shs’000

Consolidated Fund

%

Categories of assets

¸ 141,320 1.01% 5% 288,988 3.83%

Short term deposit 2,424,937 17.23% 30% 1,782,540 23.65%

Government securities 6,898,217 49.20% 70% 3,135,484 41.60%

Quoted investments 2,108,483 15.04% 70% 1,188,079 15.76%

Corporate bonds 14,042 0.10% 30% 33,079 0.44%

Treasury bills 1,980,637 14.13% 647,372 8.59%

Investment property 461,887 3.29% 30% 461,887 6.13%

Other assets 1,833,634 968,872

Total assets 15,863,157 8,506,301

Trustees

The corporate Trustee is appointed by the Fund promoter in accordance with RBA Act and Fund rules and regula-tions. The names of the current Trustees are shown on page 5.

Auditors

Deloitte & Touche have expressed their willingness to continue in office.

SIGNED ON BEHALF OF THE TRUSTEES

Timothy Wambui Trustee 31/3/ 2020



Retirement Benefits Scheme Regulations require the Trustees to prepare financial statements for each financial year which give a true and fair view of the disposition of the Fund’s assets and liabilities as at the end of the finan-cial year and of the financial transactions of the Fund for that year. The Regulations also require the Trustees to ensure that the Fund keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Fund. They are also responsible for safeguarding the assets of the Fund.

The Trustees are responsible for the preparation of financial statements that give a true and fair view in accord-ance with International Financial Reporting Standards and the Retirement Benefits Act, and for such internal controls as the Trustees determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Trustees accept responsibility for the annual financial statements, which have been prepared using appropri-ate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with Inter-national Financial Reporting Standards and in the manner required by the Retirement Benefits Regulations. The Trustees are of the opinion that the financial statements show a true and fair view of the financial transactions of the Fund and of the disposition of its assets and liabilities, other than liability to pay pensions and benefits falling due after the end of the year.

The Trustees also accept responsibility for:

• Designing, implementing and maintaining such internal control as they determine necessary to enable the presentation of financial statements that are free from material misstatement, whether due to fraud or error;

• Selecting suitable accounting policies and applying them consistently; and

• Making accounting estimates and judgments that are reasonable in the circumstances.

Having made an assessment of the Fund’s ability to meet its obligations, there is an uncertainty with regards to potential impact of COVID-19 pandemic on the future performance of the Scheme, additional details have been disclosed under note 27.

The Trustees acknowledge that the independent audit of the financial statements does not relieve them of their responsibilities.

Approved by the Trustees on 31/3/ 2020 and signed on its behalf by:

…………………………….… ………………………….……Timothy Wambui Jeff PeterTrustee Trustee

Statement Of Trustees’ Responsibilities


Deloitte & ToucheCertified Public Accountants (Kenya)Deloitte Place, Waiyaki Way MuthangariP.O Box 40092, 00100Nairobi, KenyaTel: +254 (20) 423 0000Cell: +254 (0) 719 039 000Fax: +254 (20) 444 8966Dropping Zone No. 92Email: [email protected]

Opinion

We have audited the accompanying financial statements County Pension Fund set out on pages 25 to 50, which comprise the statement of net assets available for benefits as at 31 December 2019, the statement of changes in net assets available for benefits and the statement of cash flows for the year then ended, and a summary of sig-nificant accounting policies and other explanatory notes.

In our opinion, the accompanying financial statements give a true and fair view of the financial transactions of the Fund during the year ended 31 December 2019 and of the disposition at that date of its assets and liabilities, other than liabilities to pay retirement and other benefits falling due after the end of the year in accordance with International Financial Reporting Standards and the requirements of the Retirement Benefits Act.

Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (“ISA”). Our responsibilities un-der those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial State-ments section of this report. We are independent of the Fund in accordance with the International Ethics Stand-ards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), together with the ethical requirements that are relevant to our audit of the financial statements in Kenya. We have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period.

We have determined that there are no key audit matters to communicate in our report.

Other Information

The Trustees are responsible for the other information, which comprises the Report of the Trustees as required by the Retirement Benefits Act. The other information does not include the financial statements and our auditor’s report thereon.

Independent Auditors’ ReportTo The Members Of County Pension Fund


Other Information (continued)

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Trustees for the Financial Statements

The Trustees are responsible for the preparation of financial statements that give a true and fair view in accord-ance with International Financial Reporting Standards and the requirements of the Retirement Benefits Act, and for such internal controls as the Trustees determine are necessary to enable the preparation of financial state-ments that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Trustees are responsible for assessing the Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Trustees either intend to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Fund’s financial re-porting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA’s will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skep-ticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suf-ficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control.

Independent Auditors’ ReportTo The Members Of County Pension Fund (continued)


Auditor’s Responsibilities for the Audit of the Financial Statements (continued)

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Trustees.

• Conclude on the appropriateness of the Trustees’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund’s ability to continue as a going concern. If we conclude that a mate-rial uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Fund to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclo-sures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the Fund or business activities within the Fund to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the Fund’s audit. We remain responsible for our audit opinion.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in inter-nal control that we identify during our audit.

Certified Public Accountants (Kenya)Nairobi 31st March 2020CPA Fred Aloo - P/No. 1537Signing partner responsible for the independent audit

Independent Auditors’ ReportTo The Members Of County Pension Fund (continued)


Note

2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

CONTRIBUTIONS AND WITHDRAWALS

Contributions 3 4,441,340 3,833,077 816,954 33,283

Transfers in - 1,476 - 968,039

Transfers out - (968,284) - -

Withdrawals and risk based benefits (177,204) (204,662) (37,055) (1,326)

Net surplus from dealings with members 4,264,136 2,661,607 779,899 999,996

RETURN ON INVESTMENTS

Investment income 4 664,714 412,455 82,929 9,670

Investment management expenses 5 (44,120) (19,450) (3,751) (397)Fair value gain/(loss) on revaluation of investments 6(a) 442,269 (207,807) (89) -

Gain/(loss) on realization of investments 6(b) 16,434 (3,814) - -

Change in fair value of property (365) (645) - -

Other Income 6(c) 246,054 63 22,452 -

NET RETURNS ON INVESTMENTS 1,324,986 180,802 101,541 9,273

FUND EXPENSES 7 (361,047) (282,537) (42,840) (4,104)

PROVISION FOR DOUBTFUL DEBTS 8 - (437,666) (48,626) (21,625)

INCREASE IN NET ASSETS FOR THE YEAR 5,228,075 2,122,206 789,974 983,540

NET ASSETS AT 1 JANUARY 6,875,389 4,753,183 983,540 -

NET ASSETS AT 31 DECEMBER 12,103,464 6,875,389 1,773,514 983,540

• Salih refers to Islamic rules compliant sub fund of the county pension fund.

Statement Of Changes In Net Assets Available For BenefitsFor The Year Ended 31 December 2019


Note

2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

Cash and bank balances 107,473 288,949 33,847 39

Government securities 10 4,917,580 2,488,112 - -

Treasury bills 10 1,980,637 647,372 - -

Fixed deposits 11 807,138 742,871 1,463,897 767,632

Call deposits 12 153,902 72,580 - 199,457

Corporate bonds 13 14,042 33,079 - -

Contributions receivable 14 780,899 846,251 179,639 22,239

Quoted investments 19 2,100,483 1,188,079 8,000 -

Due from related parties 22(a) 298,216 110,405 93,673 -

Investment property 16 461,887 461,887 - -

Other receivables 15 646,537 80,693 - -

12,268,794 6,960,278 1,779,056 989,367

LIABILITIES

Payables and accruals 17 (68,964) (84,292) (5,542) -

Due to related parties 22(b) (96,366) (597) - (5,827)

(165,330) (84,889) (5,542) (5,827)

NET ASSETS 12,103,464 6,875,389 1,773,514 983,540

REPRESENTED BY: FUND BALANCE 12,103,464 6,875,389 1,773,514 983,540

The financial statements on pages 25 to 50 were approved and authorized for issue by the Board of Trustees on 31/3/ 2020 and were signed on their behalf by:

…………………………….… ………………………….……Timothy Wambui Jeff PeterTrustee Trustee

Statement Of Net Assets Available For BenefitsFor The Year Ended 31 December 2019


Note

2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

CASH FLOWS FROM OPERATING ACTIVITIES

Contributions 3,134,933 2,210,372 705,417 968,039

Withdrawals paid (177,204) (206,233) (37,055) -

Administrative expenses paid (361,047) (274,465) (42,835) -Net decrease/increase in receivables and payables 950,824 (41,640) (180,333) -

Net cash generated from operating activities 3,547,506 1,688,034 445,194 968,039

CASH FLOWS FROM INVESTING ACTIVITIES

Investment income received 621,238 418,745 75,286 3,380

Purchase of government securities 10 (2,508,368) (911,999) - -

Investment in short term deposits (11,200,372) (9,134,234) (7,683,995) (1,289,846)

Purchase of corporate bonds - - - -

Purchase of quoted investments 19 (649,394) (699,531) (8,089) -

Investment property - (338,984) - -

Purchase of treasury bills 10 (2,131,146) (908,696) - -

Proceeds from disposal of commercial paper 150,000 - -Proceeds from sale/maturity of government securities 10 169,982 172,700 - -

Proceeds from sale/maturity of treasury bills 10 812,925 576,949 - -Proceeds from sale/maturity of short term deposits 11,068,889 8,721,994 7,205,411 520,000

Proceeds from sale of corporate bonds 18,811 241,164 - -

Proceeds from sale of quoted equities 19 79,981 111,591 - -

Net cash used in investing activities (3,647,571) (1,600,301) (766,466) (411,386)NET(DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS (100,065) 87,733 33,808 201,573CASH AND CASH EQUIVALENTS AT 1 JANUARY 353,024 265,291 39 -CASH AND CASH EQUIVALENTS AT 31 DECEMBER 9 252,959 353,024 33,847 201,573

Statement Of Cash FlowsFor The Year Ended 31 December 2019


Notes to theFinancial Statements


1. ACCOUNTING POLICIES

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards.

Adoption of new and revised International Financial Reporting Standards (IFRSs)

(i) Impact of relevant new standards

Several new and revised standards and interpretations became effective during the year. The Trustees have evaluated the impact of the new standards and interpretations and none of them had a significant impact on the scheme’s financial statements.

(ii) New and amended standards and interpretations in issue but not yet effective in the current year

At the date of authorisation of these financial statements, various standards and interpretations were in is-sue but not yet effective. The adoption of these standards and interpretations when effective will not result in changes in the Scheme’s accounting policies or result in any material impact on the financial statements of the Scheme.

(iii) Early adoption of standards

The fund did not early adopt any new or amended standards in 2019.

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The measurement basis applied is the historical cost basis, except for financial assets measured at fair value as per section ‘Financial instruments’ below. Revenue recognition

Contributions receivable are accounted for in the period in which they fall due.

Dividend income from investments is recognised when the Funds’ rights to receive payment as a shareholder have been established.

Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable unless collectability is in doubt.

Benefits payable

Benefits payable are accounted for in the period in which they fall due.

Notes To The Financial Statements


1. ACCOUNTING POLICIES (Continued)

Cash and cash equivalents

Cash and cash equivalents include cash at bank and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Fund in the management of its short-term commitments.

Financial instruments

All recognised financial assets that are within the scope of IFRS 9 are required to be measured subsequently at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.Specifically:

• debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the prin-cipal amount outstanding, are measured subsequently at amortised cost;

• debt instruments that are held within a business model whose objective is both to collect the contractual cash flows and to sell the debt instruments, and that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured subsequently at fair value through other comprehensive income (FVTOCI);

• all other debt investments and equity investments are measured subsequently at fair value through profit or loss (FVTPL).

Impairment of financial assets

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the Fund to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets.

In particular, IFRS 9 requires the Fund to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit-impaired financial asset.

However, if the credit risk on a financial instrument has not increased significantly since initial recognition (except for a purchased or originated credit-impaired financial asset), the Fund is required to measure the loss allowance for that financial instrument at an amount equal to 12-months ECL. IFRS 9 also requires a simplified approach for measuring the loss allowance at an amount equal to lifetime ECL for trade receivables, contract assets and lease receivables in certain circumstances.

Further, at end of each reporting period, the Fund reviews the carrying amounts of its financial assets to deter-mine whether there is any indication that these assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated and an impairment loss is recognised in the income statement of changes in net assets whenever the carrying amount of the asset exceeds its recoverable amount.

Notes To The Financial Statements (continued)



Financial liabilities

All financial liabilities are measured subsequently at amortised cost using the effective interest method or at FVTPL. However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecog-nition or when the continuing involvement approach applies, and financial guarantee contracts issued by the Group, are measured in accordance with the specific accounting policies set out below.

Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration of an acquirer in a business combination, (ii) held for trading or (iii) it is designated as at FVTPL.

Fair value

For financial instruments traded in an organised financial market, fair value is determined by reference to quoted market prices

Short term deposits

Short term deposits are classified as held to maturity and are stated at amortised cost.

Government securities

Government securities comprise treasury bills and treasury bonds, which are debt securities issued by the Gov-ernment of Kenya. Treasury bills are classified as held to maturity and are stated at amortised cost while treas-ury bonds are classified as fair value through profit or loss and are stated at fair value.

Corporate bonds

Corporate bonds are classified as fair value through profit or loss and are stated at market value as at 31 De-cember.

Equity shares

Quoted investments are classified as fair value through profit or loss and are stated at market value as at 31 December.

Off-shore investments

The off-shore investments represent pooled investments in global stock markets. These investments are clas-sified as fair value through profit or loss and are stated at market value.




Investment properties

Investment properties comprise land and buildings and parts of buildings to be held to earn rentals and/or for capital appreciation. They are carried at fair value, determined by external independent valuers. Fair value is based on active market prices as adjusted, if necessary, for any difference in the nature, condition or location of the specific asset.

Investment properties are not subject to depreciation. Gains and losses arising from changes in the fair value of investment property are included in the statement of net assets available for benefits in the year in which they arise.

On disposal of an investment property, the difference between the net disposal proceeds and the carrying amount is charged or credited to statement of net assets available for benefits for the year.

Members’ balances

Members’ funds comprise the accumulated net surpluses or deficits realized from dealings with members’ and surpluses or deficits from the Scheme are investing activities to the extent that they are not captured in the reserves.

Impairment of assets

The Scheme’s assets are reviewed annually at the end of each reporting period to determine expected losses and the resulting impairment loss is treated as an expense in the statement of changes in net assets available for benefits.

Equipment

Equipment is stated at historical cost less accumulated depreciation and any impairment charges.

Depreciation

Depreciation on equipment is calculated on a straight line basis to write-off the cost of the equipment over the expected useful life at the following annual rates of 50%.

Gain or loss arising on disposal of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in statement of changes in net assets availa-ble for benefits.

Comparatives

Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.



2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING THE SCHEME’S ACCOUNTING POLICIES

In the process of applying the Scheme’s accounting policies, Trustees have made estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judg-ments are continually evaluated and are based on historical experience and other factors, including expecta-tions of future events that are believed to be reasonable under the circumstances. These are dealt with below:

Held -to-maturity investments

The Fund follows the guidance of IFRS 9; Financial Instruments: Recognition and Measurement on classifying as held-to-maturity. Financial instruments are measured at amortized cost if both of the following conditions are met and the asset is not designated as FVTPL:

• the asset is held within a business model that is Held-to-Collect (HTC), and

• the contractual terms of the instrument give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI).

This classification requires significant judgement. In making this judgement, the Fund evaluates its intention and ability to hold such investments to maturity. If the Fund fails to keep these investments to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – it will be required to reclassify the entire class as available-for-sale. The investments would therefore be measured at fair value not amortised cost

Impairment losses on financial assets

At each reporting period end, the Fund reviews the carrying amounts of its financial assets to determine whether there is any indication that these assets have suffered an impairment loss. If any such indication ex-ists, the recoverable amount of the asset is estimated and an impairment loss is recognised in the statement of changes in net assets whenever the carrying amount of the asset exceeds its recoverable amount

Contributions income

Some sponsors statements of members contributions are not received regularly i.e. on a monthly basis as stip-ulated. The Scheme management makes an estimate of the contributions income based on the latest state-ment ever received from the sponsor.



2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

3. CONTRIBUTIONS

Employer 1,861,825 1,610,917 363,147 14,792

Employee 2,365,019 2,013,646 453,807 18,491

Interest 214,496 208,514 - -

4,441,340 3,833,077 816,954 33,283

4. INVESTMENT INCOME

Interest on government securities 404,839 212,718 - -

Interest on fixed deposits 51,696 60,156 80,928 8,136

Interest on call deposits 31,189 21,754 2,001 1,534

Interest on corporate bonds 3,517 4,703 - -

Dividend income 96,354 46,541 - -

Commercial papers discount - 19,128 - -

Treasury bill discount 77,119 47,454 - -

664,714 412,455 82,929 9,670

5. INVESTMENT MANAGEMENT EXPENSES

Fund management expenses 16,109 5,439 2,308 294

Custodian fees 9,342 11,210 1,443 103

Investment transactions expenses 16,854 885 - -

Feasibility studies 1,815 1,916 - -

44,120 19,450 3,751 397



2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

6 (a) FAIR VALUE LOSS ON REVALUATION OF INVESTMENTS

Fair value gain on government securities 99,279 67,398 - -

Fair value gain/(loss) on quoted investments 342,990 (275,205) (89) -

442,269 (207,807) (89) -

6 (b) FAIR VALUE LOSS ON REALIZATION OF INVESTMENT

Fair value loss on government securities (8,197) (4,746) - -

Fair value gain/(loss) on quoted investments 24,661 (4,022) - -

Fair value gain on other investments (30) 4,954 - -

16,434 (3,814) - -

6 (c) OTHER INCOMEReduction in impairment of contributions receivable and investment deposits 237,313 63 21,626 -

Commission from sale of KenolKobil shares 213 - - -

Profit share from Gulf bank - - 826 -

Bank interest 111 - - -

Partial recovery Imperial bank deposit 8,417 - - -

246,054 63 22,452 -



2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

7. FUND EXPENSES

Bank charges 326 234 5 -

Professional fees 9,869 12,389 - 232

Retirement Benefit Authority levy 2,774 3,305 2,226 1,695

Administrative fees 224,278 172,083 28,083 -

Other trustees expenses 12,333 5,797 6,154 993

Audit fees 1,058 1,861 758 -

Member education expenses 39,121 31,915 685 -

Promotional materials 25,868 5,727 2,300 630

Advertising & publicity 3,079 2,790 742 -

AGM & member conference 24 343 - 554

Agency force expenses* 7,458 25,085 1,887 -Stakeholders engagement(Members outreach expenses) 34,727 20,017 - -

Brand Management 132 991 - -

361,047 282,537 42,840 4,104

*Agency force expenses relate to commissions and other costs incurred for membership recruitment drives on behalf of the scheme.

8. PROVISION FOR IMPAIRMENT

Provision for impairment losses - 10,582 - 10,582

Provision for doubtful contributions - 11,043 (48,626) 11,043

- 21,625 (48,626) 21,625



2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

9. CASH AND CASH EQUIVALENTS

Cash and bank balances 107,473 288,949 33,847 39

Call deposits 145,486 73,374 - 201,534Cash and cash equivalents- disclosed in the cash flow statement 252,959 362,323 33,847 201,573

Less: Provision for impairment losses - (9,299) - (10,582)

252,959 353,024 33,847 190,991

10. GOVERNMENT SECURITIES –Treasury bonds

Cost at beginning of the year 2,488,112 1,686,619 - -

Additions 2,508,368 911,999 - -

Proceeds from disposal (169,9820) (172,700) - -

Gain on disposal (8,1970) (5,204) - -

Add: fair value gains 99,280 67,398 - -

Government securities –Treasury bonds 4,917,580 2,488,112 - -The maturity dates for government securities are:

- After one year but within two years 412,228 - 224,683 -

- After two years but within five years 824,463 - 765,451 -

- After five years 3,680,889 - 1,495,978 -

4,917,580 - 2,488,112 -

The effective weighted interest rate on the treasury bonds was 12.75 % (2018 – 12.25 %).



10. GOVERNMENT SECURITIES – Treasury bonds

2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

TREASURY BILLS

Cost at beginning of the year 647,372 298,246 - -

Less: accrued interest 2018 (26,547) (9,168) - -

Additions 2,131,146 908,696 - -

Proceeds from disposal (812,925) (576,949) - -

Add: accrued interest 15,044 26,547 - -

Treasury bills – at market value 1,980,637 647,372 - -



11. SHORT TERM DEPOSIT

RateMaturity

Date2019

Shs’0002018

Shs’000

a) CONVENTIONAL FUND Family Bank 10 1/13/2020 67,514 -Kenya Commercial Bank 8.8 1/13/2020 11,074 41,725Kenya Commercial Bank 9 1/20/2020 90,311 50,246NCBA Bank 9 1/20/2020 85,147 54,252Equity Bank 9 1/27/2020 3,511 -Cooperative Bank of Kenya 8.5 1/27/2020 200,326 93,152Family Bank 10 1/28/2020 16,258 -NCBA Bank 9 2/3/2020 100,173 100,548Equity Bank 9 2/3/2020 1,000 3,008NCBA Bank 8.5 2/17/2020 11,610 126,097Equity Bank 9.25 3/23/2020 100,203 23,074Equity Bank 9.25 3/23/2020 63,012 28,021Equity Bank 9.25 10/2/2020 9,000 33,658Equity Bank 9 30/03/2020 48,000 100,099CFC Stanbic of Kenya Holdings Ltd 9.20% 01/04/2018 - 95,072Imperial Bank (under receivership) 10.25% N/A - 64,800Less: Provision for impairment loss - (70,881)

807,138 742,871

b) SALIH FUNDGulf African Bank 8.5 1/6/2020 201,734 525,850Kenya Commercial Bank 8 1/6/2020 144,248 250Barclays Bank 7.5 2/3/2020 149,812 -Barclays Bank 7.5 2/3/2020 92,308 -Kenya Commercial Bank 8 2/17/2020 252,685 231,875Kenya Commercial Bank 8.25 3/23/2020 115,932 18,162Kenya Commercial Bank 8.25 3/23/2020 302,707 -Barclays Bank 8 9/21/2020 204,471 -Less: Provision for impairment loss - (8,505)

1,463,897 767,632



12. CALL DEPOSITS

Rate2019

Shs ‘000

a) CONVENTIONAL FUND

Cooperative Bank of Kenya 7.50 On call 1,005


Imperial Bank Kenya N/A On call 56,383

Kenya Commercial Bank 6.00 On call 62,416


Impairment (56,383)

153,902

The weighted average interest rate as at 31 December 2019 was 7 % (2018: 8.06 %).

Rate2018

Shs ‘000

Cooperative Bank Plc 8.00% On Call 6,547

Family Bank 9.00% On Call 1,533

Family Bank 9.00% On Call 15,049

KCB Group Plc 8.25% On Call 50,245

Less: Provision for impairment loss (794)

72,580b) SALIH FUND

Description Rate2019

Shs’0002018

Shs’000

Kenya Commercial Bank 8.000 On call - 201,534

Less: Provision for impairment loss - (2,077)

- 199,457



13. CORPORATE BONDS

Average Interest rate

2019Shs’000

Conventional

2018Shs’000

Conventional

NICBA 15.75% 5,026 5,024

Centum Investment Company Limited 12.50% 9,016 9,013

NIC Group Plc 12.50% - 6,765

Corporate Insurance Company Limited 13.00% - 12,174

Kengen Limited 12.50% - 524

Less: Provision for impairment loss - (421)

14,042 33,079

The weighted average interest rate as at 31 December 2019 was 12.50 % (2018: 12.46 %).

2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

14. CONTRIBUTIONS RECEIVABLE

Contribution receivable from sponsors 785,050 1,640,200 228,265 33,282

Interest on outstanding contributions 599,093 11,808 - -

Provision for bad and doubtful receivables (603,244) (805,757) (48,626) (11,043)

780,899 846,251 179,639 22,239

Movement in provision for doubtful receivables:

At 1 January 805,757 375,387 11,043 -

Provisions in the year (202,513) 430,370 37,583 11,043

At 31 December 603,244 805,757 48,626 11,043



2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

15. OTHER RECEIVABLES

Dividend receivable - 1,842 - -

Prepayments 643,393 78,851 - -

Sundry receivables 3,144 - - -

646,537 80,693 - -

16. INVESTMENT PROPERTIES

Mavoko Land LR 20212 123,550 123,550 - -

Eldoret Land Block 8/63 338,337 338,337 - -

461,887 461,887 - -

At start of the year 461,887 123,550 - -

Additions - 338,984 - -

Loss on revaluations - (647) - -

At end of year 461,887 461,887 - -

17. PAYABLES AND ACCRUALS

Withdrawal benefits payable 2,340 - - -

Accrued expenses 13,377 42,260 1,246 -

RBA levy payable 2,774 5,000 2,226 -

Benefits premium 26,857 16,748 - -

Audit fees 944 1,215 758 -

Other accruals 22,186 15,913 1,238 -

Withheld taxes 486 57 5 -

68,964 84,292 5,473 -



2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

18. FUND BALANCE

At beginning of the year 6,875,389 4,753,183 983,541 -

Increase in net assets for the year 5,228,075 2,122,206 789,973 983,540

At 31 December 12,103,464 6,875,389 1,773,514 983,540



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20. MANAGEMENT OF MEMBERS’ FUNDS

The Fund maintains an efficient structure of members’ funds consistent with the Fund’s risk profile and the regulatory and market requirements of its operating environment.

The Fund’s objectives when managing members’ funds are to safeguard the Fund’s ability to continue as a go-ing concern in order to fulfill its obligations of paying retirement benefits when they fall due.

21. FINANCIAL RISK MANAGEMENT

The Fund generates revenues for the members by investing in various income generating activities. These ac-tivities expose the Fund to a variety of financial risks, including credit risk and the effects of changes in equity market prices, foreign currency exchange rates and interest rates. The Fund’s overall risk management pro-gramme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on its financial performance.

Risk management is carried out by the investment managers and the Trustees under policies approved by the Trustees. Investment managers review the market trends and information available to evaluate the potential exposures. They then arrive at strategies to mitigate against market risks.

Market risk

Interest rate risk

The Fund’s interest bearing assets include treasury bonds and term deposits which are at variable and fixed interest rates.

At 31 December 2019, an increase/(decrease) of 1% on the interest bearing financial assets’ interest rate would have resulted in increase/(decrease) respectively in net increase in net assets of approximately Shs 21,004,838 (2018 – Shs 1,866,742).

Credit risk

Credit risk arises from cash and cash equivalents and receivables. As part of the credit risk management sys-tem, the investment managers and the Trustees monitor and review information on significant investments.

The amount that best represents the Fund’s exposure to credit risk as at 31 December 2019 is made up as fol-lows:



21. FINANCIAL RISK MANAGEMENT (Continued)

2019

Fully performing

Shs’000

Past dueShs’000

ImpairedShs’000

TotalShs’000

Government securities 4,917,580 - - 4,917,580Bank balances 107,473 - 107,473Call deposits 153,902 - 56,383 210,285Treasury bills 1,980,637 - - 1,980,637Fixed deposits 807,138 - - 807,138Contributions receivable 780,899 - - 780,899Equity Investments 2,100,483 - - 2,100,483Corporate bonds 14,042 - - 14,042Other receivables 646,537 - - 646,537Amount due from related parties 87,915 - - 87,915Salih Investments(Short term deposits & Equities) 1,578,186 - - 1,578,186

13,174,792 - 56,383 13,231,1752018Government securities 2,488,112 - - 2,488,112Bank balances 288,988 - - 288,988Call deposits 72,580 - 794 73,374Treasury bills 647,372 - - 647,372Fixed deposits 742,871 - 6,081 748,952Contributions receivable 868,490 - - 868,490Equity Investments 1,188,079 - - 1,188,079Corporate bonds 33,079 - 421 33,500Other receivables 80,693 - - 80,693Amount due from related parties 104,578 - - 104,578Salih Investments(Short term deposits) 967,089 - 10,582 977,671

7,481,931 - 17,878 7,499,809

The debts that are impaired are fully provided for. The debts that are past due are not impaired and continue to be paid. The Fund’s management is actively pursuing these debts.




Liquidity risk

The Fund is required to make payments in respect of pension payments when members withdraw or retire from the Fund, and is therefore exposed to the risk of difficulty in raising funds to make such payments. It therefore invests a portion of its assets in investments that are readily convertible to cash. The investment managers monitor the Fund’s liquidity on a regular basis and the Trustees review it on a quarterly basis.

The amounts disclosed in the table below are the contracted undiscounted cash flows of the Fund’s financial liabilities.

2019Shs‘000

2018Shs‘000

Other payables 22,186 84,292

The Fund’s current liabilities are all payable within a year.

Fair value of financial assets and liabilities

The table below shows an analysis of financial instruments at fair value by level of the fair value hierarchy. The financial instruments are grouped into levels 1 to 3 based on the degree to which the fair value is observable:

i. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

ii. Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as a price) or indirectly (i.e. derived from prices); and

iii. Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

31 December 2019Level 1

Shs’000Level 2

Shs’000Level 3

Shs’000Level 4

Shs’000Fair value through profit or loss: - 1,980,637 - 1,980,637Equity investments 2,108,483 - - 2,108,483Corporate bonds - 14,042 - 14,042Investment property - - 461,887 461,887Government securities 4,917,580 - - 4,917,580

7,026,063 1,994,679 461,887 9,482,629




Fair value of financial assets and liabilities (continued)

31 December 2018Level 1

Shs’000Level 2

Shs’000Level 3

Shs’000Level 4

Shs’000Fair value through profit or loss: - 647,372 - 647,372Equity investments 1,188,079 - - 1,188,079Corporate bonds - 33,079 - 33,079Investment property - - 461,887 461,887Government securities 2,488,112 - - 2,488,112

3,676,191 680,451 461,887 4,818,529

The Fund had no financial assets or liabilities measured at fair value as at 31 December 2019. There were no transfers between levels 1, 2 and 3 in the year (2018: none).

22. RELATED PARTY TRANSACTIONS

The Fund transacts with its members, the various local authorities in Kenya. Amounts due from the sponsors represent contributions and related penalties outstanding at year end.

2019Sh’000

Conventional Fund

2018Sh’000

Conventional Fund

2019Sh’000

Salih Fund

2018Sh’000

Salih Fund

a) Due from related parties

Local Authorities Pension Trust Retirement Benefits Scheme 199,081 83,629 - -Laptrust Individual Pension Scheme 99,135 20,949 - -Salih Fund - 5,827 93,673 -

298,216 110,405 93,673 -

b) Due to related parties

CPF Financial Services Limited 2,693 597 - -Salih Fund 93,673 - - 5,827

96,366 597 - 5,827

The related party balances are interest free, unsecured and have no fixed repayment period.



23. FAIR VALUE

The Trustees consider that there is no material difference between the fair value and the carrying value of the Fund’s financial assets and liabilities where fair value details have not been presented.

24. CONTINGENT LIABILITIES

Other than the liability to pay future pensions and other benefits, there were no contingent liabilities of the Fund as at 31 December 2019 (2018 – nil).

25. REGISTRATION AND INCORPORATION

The Fund is registered in Kenya under the Retirement Benefits Act.

26. CURRENCY

The financial statements are presented in Kenya Shillings (Shs).

27. EVENTS AFTER YEAR END

In March 2020, the World Health Organization (WHO) officially declared the recent global outbreak of Coro-navirus (COVID -19) a pandemic. This health hazard has resulted in significant governmental measures and caused disruption to the financial markets and global economy. At present, there is an uncertainty with re-gards to potential impact of this pandemic on the future performance of the Scheme. Pension scheme assets and related income may be impacted through devaluation of investments and expected depression of the activities in the financial markets, both locally and globally. In addition, the pandemic may put pressure on the liquidity and solvency conditions of the scheme if it persists for a lengthy period of time. The trustees are monitoring the situation but are presently unable to quantify the impact of that this matter on the affairs of the Scheme as it is still evolving.



Notes


GARISSA BRANCH Immigration House,Ground FloorMob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5Email: [email protected]

HEAD OFFICECPF House, 7th Floor, Haile Selassie Avenue,P.O Box 28938-00200 Nairobi. Mob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5Fax: +254 (020) 2251807Email: [email protected]

ELDORET BRANCHZion Mall,1st Floor, Uganda Road.Mob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5+254-720 433 354P.O. Box 8805 - EldoretEmail: [email protected]

KISUMU BRANCHCentral Square Building,2nd Floor, Oginga Odinga Street Mob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5P.O. Box 7468 - KisumuEmail: [email protected]

MOMBASA BRANCHJubilee Arcade,1st Floor, Moi Avenue.Mob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5Email: [email protected]

NYERI BRANCHKang’aru Annex,2nd Floor.Mob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5Email: [email protected]

BUNGOMA BRANCHNew Island Buildings,1st Floor, Next to the County Government, Bungoma Town.Mob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5Email: [email protected]

MERU BRANCHGolden Pillar Sacco Building, 1st Floor,Next Mathai’s Supermarket Matatu Main Stage, Meru.Mob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5Email: [email protected]

NAKURU BRANCHTamoh Plaza1st Floor, Next to Prestige Mall,Nakuru.Mob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5Email: [email protected]

Scheme Corporate Administrator Offices


CPF House 7th Floor, Haile Selassie Avenue, P.O Box 28938 - 00200 NairobiMob: 0720 433 354, 0735 763 293, Tel: +254 2064 901-5 Email: [email protected]

Nairobi / Mombasa / Kisumu / Eldoret / Meru / Nakuru / Garissa / Nyeri / Bungoma

CPF Kenya @CPF Kenya CPF Kenya

COUNTY PENSION FUND - cpf.or.ke

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Transcript of COUNTY PENSION FUND - cpf.or.ke