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Annual Report and Financial Statements 1

Local Authorities Pension Trust

Integrated Report & Financial Statements 2018

OUR HERITAGEOUR LEGACY


OUR VISION“To improve the quality of lives of members”

OUR MISSION“To provide innovative retirement benefi ts

that enhance the social –economic welfare of all the contributors and benefi ciaries”

CORE VALUESTeam spirit

InnovativenessProfessionalism

IntegrityCustomer Focus

2CORPORATEADMINISTRATOR


02 Vision & Mission

03 Table of Contents

04Notice of the Annual General Meeting

05 Trustees and Professional Advisors

06 Trustees

10 Corporate Administration Management Team

12 Chairman’s Report

16Corporate Administrator’s Report

20 Corporate Governance Statement

27 Report of the Trustees

31Statement of Trustees’ Responsibilities

32 Independent Auditors’ Report

36Statement of Net Assets Available for Benefi ts

38 Statement of Cash Flows

39 Notes to the Financial Statements

Table of Contents



Notice of the Annual General Meeting

Notice is hereby given that the Annual General Meeting (A.G.M) of the Local Authorities Pension Trust (LAPTRUST) will take place on Thursday 27th June, 2019 at the PrideInn Paradise Beach Resort & Spa, in Mombasa County starting from 8.30 A.M to 1:00 P.M.

Agenda

1. Introduction and opening remarks2. Address by Chief Guest3. Reading of the Notice of the meeting4. Reading and taking note of the minutes of the Annual General Meeting held on 20th July, 20185. Presentation of the Chairman’s report6. Presentation of the Administrator’s report7. Presentation of the Scheme’s Custodian Reports8. Presentation of the Investment Manager’s reports9. Presentation of the Financial Statements and Audited Accounts for year 201810. Award Ceremony11. Question and Answers12. Presentation by Stakeholders of the Scheme13. Vote of thanks

By order of the Board

HOSEA KILI, OGWGROUP MANAGING DIRECTOR/CEOCPF FINANCIAL SERVICES LTD; THE SCHEME CORPORATE ADMINISTRATORFOR & ON BEHALF OF THE TRUSTEES OF CPF (INDIVIDUAL) PENSION SCHEME



Trustees and Professional Advisors

CPF House, 7th fl oorHaille Sellasie AvenuePO Box 28938, 00200Nairobi

Investment Managers

ICEA LION Asset Management LimitedICEA LION Centre, Riverside Park, Chiromo Road, WestlandsP O Box 46143, 00100Nairobi

Britam Asset Managers (K) LimitedBritam Centre, Mara/Ragati RoadP.O Box 30375-00100 Nairobi

Stanlib Kenya LimitedLiberty House, Mamlaka RoadPO Box 30550, 00200Nairobi

Custodians

Standard Chartered Bank LimitedStandard Chartered Securities Services Chiromo, 48 Westlands RoadPO Box 40984, 00100Nairobi

Kenya Commercial Bank LimitedCustody ServicesKCB Towers, Upper Hill, 7th Floor, P O Box 30664, 00100Nairobi

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

Administrators

CPF Financial Services LimitedCPF House, 6th fl oorHaille Sellasie AvenuePO Box 28938, 00200Nairobi

PricewaterhouseCoopersCertifi ed Public AccountantsPwC Tower, Waiyaki Way/Chiromo RoadWestlandsPO Box 43963, 00100Nairobi

Zamara Actuaries, Administrator and con-sultant LtdConsultants and Actuaries10th Floor, Landmark Plaza, Upper hillP O Box 52439, 00200, Nairobi

Auditors Actuaries

Bankers

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

Barclays Bank of Kenya LimitedBarclays Plaza BranchP O Box 30120, 00100Nairobi

The Co-operative Bank of Kenya LimitedCPF House BranchP O Box 5772, 00200Nairobi

Standard Chartered Bank Kenya LimitedKenyatta Avenue BranchP O Box 444205, 00200Nairobi

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

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

Registered Offi ce

Trustees

Calvin Nyachoti– Chairman (Date of exit 22nd August 2018)Hosea KiliJoseph Leonard Owino Otina (Date of exit 22nd August 2018)Festus Ngari (Date of exit 22nd August 2018)Millicent Omukaga (Date of exit 31st January 2019)Abdikadir Sheikh Hassan (Date of exit 31st January 2019)

Anne Njeri Mwangi (Date of exit 31st January 2019)Matilda Kimetto (Appointed on 28th August 2018)Charles Sunkuli (Appointed on 28th August 2018)John Oscar Juma (Appointed on 6th November 2018) Peter Kitesho Musa (Appointed on 6th November 2018)George Kwedho(Dr.) (Appointed on 6th November 2018)



Trustees

CALVIN NYACHOTIChairman

Mr. Nyachoti is an Advocate of the High Court of Kenya and served as the Chairperson of the Board of Trustees.

He is a Certifi ed Public Secretary and holds qualifi cations in strategic leadership develop-ment as well as corporate governance. Calvin joined the Board in August 2015 as an inde-pendent member of the Board nominated by the Law Society of Kenya.

LEONARD OWINO OTINATrustee

Mr. Otina is a former Manager of Ngethu Water Works (Nairobi City Water and Sewerage Co. Limited) prior to which he was the Chief Superintendent in the same institution. Mr. Otina joined the Board in August 2015 where he represented pensioners under County Pensioners Association (CPA).

HOSEA KILI, OGWTrustee

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 Member of the Institute of Certifi ed Public Secretaries of Kenya (ICPSK); a Fellow and Council Member of Kenya Institute of Management (KIM) and an active member of the Law Society of Kenya (LSK).

Mr. Kili serves as a Council member of the East and Central Africa Social Security Associa-tion (ECASSA) and a Non-Executive Director at the Nairobi Securities Exchange (NSE). He is currently the Chairman of the Association of Pensions Administrators of Kenya (APAK).

A recipient of numerous commendations and awards, 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 im-prove 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 Champions of Gov-ernance Awards.


Trustees

ABDIKADIR SHEIKH HASSANTrustee

Mr. Abdikadir is an Advocate of the High Court and the former County Assembly Speaker of Mandera. He also served as an executive member of the County Assemblies Forum (CAF).

Mr. Hassan joined the Board in February 2016 where he represented the Association of County Governments of Kenya.

MILLICENT OMUKAGATrustee

Ms. Omukaga is a certifi ed Accountant, Auditor, Strategy and Change management profes-sional with immense experience in institutional transformation from the fi nancial sector.

Millicent joined the Board in February 2016 as an independent member of the Board nomi-nated by the Institute of Certifi ed Public Accountants of Kenya (ICPAK).

FESTUS NGARITrustee

Mr. Ngari is an accountant, CPA (K) and currently works with the Nairobi County Govern-ment.

Mr. Ngari joined the Board in August 2015 through the Kenya County Government Workers Union (KCGWU). He represented the active members of the Scheme.

ANNE NJERI MWANGITrustee

Anne is currently the Managing Director of Oloolaiser Water and Sewerage Company Limit-ed. She is a registered Graduate Engineer by the Engineers Registration Board.

Anne joined the Board in February 2016 where she represented the Interests of Associated employers under the Water Service Providers Association (WASPA).


Trustees

CHARLES TALENGO SUNKULITrustee

Charles T. Sunkuli, CBS is the current Principal Secretary, State Department for Devolution, Ministry of Devolution and Development of ASALs. He has previously served as the Principal Secretary, Ministry of Environment and Forestry, a position he held from December, 2015 to February, 2018.

He has a wealth of experience in Public Service spanning over 18 years. Mr. Sunkuli is an experienced management strategist with a solid background in Administration, Planning, Management and Leadership.

He holds two Executive Masters Degree in Business Administration from Eastern and South-ern Africa Management Institute and Maastricht School of Management (MSM) Nether-lands, a Bachelor of Education Degree (B.Ed. Arts) from Moi University.

Mr. Sunkuli has held other positions nationally and globally including being the Designated National Focal Point of the Green Environmental Facility (GEF) of the United Nations Envi-ronment Program, Board Member of the Strategic Approach to International Chemical Man-agement (SAICM), National Focal Point of the Lake Victoria Basin Commission (LVBC) and Life Member of the International Red Cross Society among many other community based leadership positions.

He strives for results based performance as evidenced in the recent ban of plastic bags in Kenya, implementation of a robust solid waste management programme that led to closure of Ngong and Kibarani dumpsites in Kajiado and Mombasa respectively, among others.

He currently sits in the Laptrust Board of Trustees as the representative of the Ministry of Devolution and Development of ASALs.

DR.GEORGE KWEDHOTrustee

Dr. George Kwedho is an accomplished Engineer with signifi cant experience of over 38 years in the fi elds of Engineering, Environment and Management; gained through diverse and complex environments in Kenya, United Kingdom and Japan. He holds a Doctorate in En-vironmental Management, Masters in Entrepreneurship studies, Bachelor’s degree in en-gineering, Diploma in water and waste engineering, Diploma in Business Management and various certifi cates acquired both locally and abroad. He is a qualifi ed trustee as per the requirements of the Regulatory Benefi ts Authority. He is an active and full member of the Kenya Institute of Management and a lead expert and member of the Environmental Insti-tute of Kenya.

Dr. Kwedho has previously held senior management positions including Technical Manager, Managing Director and Chief Executive Offi cer in key organizations in the water and sani-tation sector in Kenya, including Lake Victoria North Water Services Board, Western Water Services Company and Eldoret Water and Sanitation Company.

Currently, Dr. Kwedho sits in various boards including; Council Member at Chuka Universi-ty, Chairman at Busia Water and Sewerage Company and Vice Chairman Kenya Institute of Management (Kakamega Branch), among others.

Dr. Kwedho represents the County Pensioners Association in the Laptrust Board of Trustees, having been appointed as such in November 2018.


Trustees

JOHN OSCAR JUMATrustee

John Oscar Juma is an Advocate of The High Court of Kenya admitted to the Bar in the year 2000 and has actively practiced for 19 years. An alumnus of Starehe Boys Centre, Mr. Juma holds an LLB (Hons) Degree from the University of Nairobi and a Diploma in Law from the Kenya School of Law.

Mr. Juma is a Certifi ed Public Secretary and has undertaken extensive training in Leader-ship & Team Building, Capacity Building for Lawyers, Cross Border Legal Practice, Public Procurement, and Professional Ethics. Mr. Juma has been and continues to serve as a Mem-ber of the Law Society of Kenya Committee on Continuing Professional Development (CPD).Mr. Juma represents the Law Society of Kenya as an Independent Member of the Board of Trustees, Laptrust, having been appointed as such in November 2018 for a period of three (3) years.

PETER MUSA KITESHOTrustee

Peter Kitesho is a defender of Workers and Labour rights and holds a Bachelor of Science in Human Resource Management degree from Maasai Mara University. He is currently an employee of the Kajiado County Assembly and previously worked at Central Bank of Kenya. Besides his professional engagements, Mr. Peter Kitesho has served as the Youth Represent-ative for Kenya County Government Workers Union, Kajiado Branch and is currently serving as the National Youth Representative for the union.

He represents workers in the Laptrust Board of Trustees.

MATILDA KIMETTOTrustee

Matilda Kimetto is a trade union leader and a strong defender of Labour rights. She current-ly serves as the Deputy Secretary General of Kenya County Government Workers Union, previously having served as the National Organizing Secretary. She is an employee of Nairobi City Water and Sewerage Co. Ltd, Human Resource and Administration Directorate.

Matilda represents the Workers in the Laptrust Board of Trustees.


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 Af-rica (MANCOSA). He is a Fellow Member of the Institute of Certifi ed Public Secretaries of Kenya (ICPSK); a Fellow and Council Member of Kenya Institute of Management (KIM) and an active member of the Law Society of Kenya (LSK).

Mr. Kili serves as a Council member of the East and Central Africa Social Security Association (ECASSA) and a Non-Executive Director at the Nairobi Securities Exchange (NSE). He is current-ly the Chairman of the Association of Pensions Ad-ministrators of Kenya (APAK).

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 pen-sion 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 Champions of Governance Awards.

JOSEPH RONODirector - Strategy, Finance

and Investments

Joseph Rono is a Finance and Investments pro-fessional with over 15 years’ experience in pri-vate and public sector development in the East African region. His key areas of expertise include Strategy, fi nance and Investments with a special interest in ICT, Strategy formulation and imple-mentation.

Mr. Rono is a recipient of numerous awards in-cluding “Chief Investment Offi cer of the Year” Award at the 2017 Pension Awards. He is a Cer-tifi ed Public Accountant (CPA K) and holds a BSc. Mathematics and Computer from the Jomo Kenyatta University of Agriculture & Technology (JKUAT) and an MBA in Finance from the Univer-sity of Nairobi.

CHRISTINE NYAMWANDADirector - Operations and Marketing

Christine Nyamwanda was the Director of Oper-ations and Marketing at CPF Financial Services. She brings on board over 15 years of experience in the Retirement Benefi ts and Financial sectors with key skills in Strategy Development, Sales and Client Service. Christine has over the years served in some of the leading local and international institutions of-fering Custody services, Scheme Administration, Consulting and Fund Management.

She holds a Bachelor of Commerce Degree from the Catholic University of Eastern Africa and is currently pursuing a Masters in Public Policy Management at Strathmore university.

Administrator's Managment Team

ISAAC MITEIGroup Head of Legal &

Company Secretary

Mr. Mitei, is currently the Group Company Secre-tary and Head of Legal with CPF Financial Servic-es. An Advocate of the High Court of Kenya, Isaac Mitei has over 12 years experience in the Legal fi eld. He holds an Honours Law Degree from Moi University and a Diploma in Law from the Kenya School of Law.

Isaac is a member of the Law Society of Kenya (LSK) and the Institute of Certifi ed Secretaries of Kenya (ICPSK)

IRENE MBONGEGroup Head of Corporate Communication

and Public Aff airs

Irene is a Chartered Public Relations practition-er with 10 years’ experience in the areas of Cor-porate Communications and Public Aff airs. 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 the interim Chair of the Chartered Institute of Public Relations – Kenya Chapter (CIPR-K), a member of the Public Re-lation Society of Kenya (PRSK) and a Standing Committee member of the East and Central Africa Social Security Association (ECASSA).

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Joseph Rono is a Finance and Investments pro-fessional with over 15 years’ experience in pri-vate and public sector development in the East African region. His key areas of expertise include Strategy, fi nance and Investments with a special interest in ICT, Strategy formulation and imple-mentation.

Mr. Rono is a recipient of numerous awards in-cluding “Chief Investment Offi cer of the Year” Award at the 2017 Pension Awards. He is a Cer-tifi ed Public Accountant (CPA K) and holds a BSc. Mathematics and Computer from the Jomo Kenyatta University of Agriculture & Technology (JKUAT) and an MBA in Finance from the Univer-sity of Nairobi.

Christine Nyamwanda was the Director of Oper-ations and Marketing at CPF Financial Services. She brings on board over 15 years of experience in the Retirement Benefi ts and Financial sectors with key skills in Strategy Development, Sales and Client Service. Christine has over the years served in some of the leading local and international institutions of-fering Custody services, Scheme Administration, Consulting and Fund Management.

She holds a Bachelor of Commerce Degree from the Catholic University of Eastern Africa and is currently pursuing a Masters in Public Policy Management at Strathmore university.

tary and Head of Legal with CPF Financial Servic-

University and a Diploma in Law from the Kenya

Irene is a Chartered Public Relations practition-er with 10 years’ experience in the areas of Cor-porate Communications and Public Aff airs. 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 the interim Chair of the Chartered Institute of Public Relations – Kenya Chapter (CIPR-K), a member of the Public Re-lation Society of Kenya (PRSK) and a Standing Committee member of the East and Central Africa Social Security Association (ECASSA).

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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 Certifi ed Public Accountant of Kenya (CPA K), a member of the Institute of Cer-tifi ed Public Accountants of Kenya (ICPAK), a cer-tifi ed Risk Analyst (CRA), a certifi ed Information System Auditor (CISA) and a Certifi ed Change Management Practitioner (Prosci).

CORNELIUS NDUMAIGroup Head of Internal Audit

Mr. Ndumai is a Certifi ed Public Accountant, an ac-tive Member of the Institute of Certifi ed Public Ac-countants 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 Administration (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 pro-fessional and brings on board over ten (10) years of expertise.

EBLA MOHAMMEDGroup Head of Human Resource

& AdministrationEbla holds an MBA in Business Administration from the United States International University (USIU), a Bachelor’s Degree in Sociology from the University of Nairobi and a Post-Graduate Diplo-ma in Human Resource Development from the University of Nairobi. She has over 15 years of comprehensive human capital management expe-rience and is a Member of the Institute of Human Resource Management (IHRM).

TONY OLANGDirector - ICT

Mr. Tony Olang, in a career spanning over 19 years in fi nancial services, ICT and renewable en-ergy sector has contributed signifi cantly 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 Systems Security from the Cambridge Association of Man-agers as well as a BSc. in Computing from the Uni-versity of Portsmouth.

JONATHAN MARUCHA

Director - Insurance ServicesMr. Marucha holds an MBA in Strategic Manage-ment, Bachelor of Commerce (Insurance), a Diplo-ma in Insurance from the Chartered Insurance Institute (CII) and a Certifi cate 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 Governance.

Jonathan is a multi-skilled insurance professional with over 13 years’ experience in business devel-opment, portfolio management, claims manage-ment, insurance regulatory compliance, risk as-sessment and valuation.

SHAFANA RAJANIGeneral Manager, Property Services

Shafana has over 15 years of professional busi-ness management experience with 7 years in the real estate industry having served with an international Real Estate company previously. She holds a BSc. Degree in International Business Administration and a MA Degree in International Relations both from the United States Interna-tional University – Africa. She is currently pur-suing a PHD Program in Business Management. Shafana is a Member of Marketing Society of Kenya.

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Administrator's Managment Team

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It is with great pleasure that I present to you the In-tegrated Report and audited fi nancial statements for the Local Authorities Pension Trust for the year end-ed 31st December, 2018. The Board of Trustees for the Laptrust Defi ned Bene-fi ts Scheme (Laptrust) continues to oversee the fund activities and performance in keeping with its man-date and duty to the members. The Board aims at en-suring optimum return on investment and prudence in administration and management of the fund.

The Year in Review

2018 saw the economy rebound and show gradual signs of improvement inspite of the many challeng-es the country experienced. The year ended 31st De-cember, 2018 refl ected better business sentiment and easing of political uncertainty, as well as GDP growth. The economic projections estimated the economy to rebound from 4.9 percent in 2017 to 5.7 percent in 2018 and rise gradually to 6.0 percent by 2020 as the output gap closes – according to the World Bank Kenya Economic Update 2018. This positive trajecto-ry laid a solid foundation upon which the economy, accompanied by inclusive growth policy measures, accelerated poverty reduction.

According to the Kenya National Bureau of Statistics (KNBS) employment in the informal sector, in 2018, accounted for 83.4 per cent of total employment in the period under review. The number of persons en-gaged, excluding those in rural small scale agricul-ture and pastoralist activities, rose by 5.6 per cent from 16.0 million persons in 2016 to 16.9 million persons in 2017; with a similar trajectory expected for 2018. Equally, wage employment in the modern sector increased from 2,553,000 persons in 2016 to 2,656,000 persons in 2017, with this number project-ed to increase exponentially in 2018. However, ow-ing to increased cost of living, Annual real average earnings per person decreased from Kshs 379,968.9 to Kshs 369,004.3 over the same period. Infl ation as measured by Consumer Price Index increased from 4.50 per cent in December 2017 to 5.71 per cent in December 2018.

Given the trying investment environment that pre-vailed over much of the fi nancial year, I am particu-larly pleased to report that the scheme successfully navigated the challenges it faced to once again deliv-er an impressive set of results for the scheme’s mem-bers.

Given the trying investment environment that prevailed over much of the fi nancial year, I am particularly pleased to report that the scheme successfully navigated the challenges it faced to once again de-liver an impressive set of results for the scheme’s members.”

Dr. George Kwedho

“

CHAIRMAN’S REPORT


Financial Performance

It is important to note that the Laptrust Defi ned Ben-efi ts Scheme remains a closed scheme (has not been admitting any new members since June 2011) and as such, is expected to continue serving the existing members until the last member retires and their pen-sion is paid out, to the last benefi ciary.

The Scheme’s value as at 31 December 2018 was Shs 27.7 billion, up from Shs 26.5 billion as at 31 Decem-ber 2017, representing an increase of 4.5 %.

The increase in net assets for the year was Ksh.1.1 Billion, with a net return on investments of Ksh.1.2 Billion.

Unremitted Contributions

The Laptrust Defi ned Benefi ts scheme continues to grapple with the challenge of outstanding unremit-ted contributions and the penalties levied on the same, which constitute the Scheme’s Debt.

As at the close of the reporting period, the Scheme Debt stood at 19.4 Billion, with the larger portion of this debt having accrued post-devolution. The eff ect of the unremitted contributions led to more provi-sions in the scheme’s books of account, which result-ed in a decrease in receivables; which in turn had an overall negative eff ect on the fund value.

Our Heritage & Future Prospects

The Laptrust Scheme is now in its 90th year of service to its members and other stakeholders. The scheme has over the last nine decades continued to honour its obligations, gaining the trust of its members, pen-sioners and benefi ciaries alike. With a network span-ning the 47 County Governments in Kenya, 36 Water Companies and other associated organizations, this 90-year legacy, built on the fi rm foundation of trust, is testament to prudent management and excellence in customer service. It is owing to this that we are able to confi dently forecast the future with a renewed focus, driven by the Scheme’s strategic objectives.

With a well-defi ned strategic road map, the Trus-tees continue to closely monitor the progress of the achievement of the set objectives as outlined in the scheme’s strategic plan 2018-2020.

Chairman’s Report (continued)

Fund Value (Ksh.Billion) Net Return on Investment (Ksh. Billions)

30,000,000,000.00

22,500,000,000.00

15,000,000,000.00

7,500,000,000.00

4,000,000,000

3,000,000,000

2,000,000,000

1,000,000,000

Fund Value and Net Investment Income 31/12/2018

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Fund

Val

ue (

Bill

ions

)

Year

2005

Strategic pillars

Debt Reduction

Sustainability

Effi cient and Responsive service delivery


Chairman’s Report (continued)

Appreciation

On behalf of the Board, I would like to thank our esteemed members, benefi ciaries and pensioners; to whom we owe the privilege to serve, which is indeed - what inspires our quest for even greater performance as we go forward.

I wish to extend my appreciation to the Scheme sponsors that include; County Governments, Water Companies and associated organizations. I also extend my gratitude to the industry regulator, the Retirement Benefi ts Au-thority for continuously steering the industry to excellence for the greater good of the members. Our philoso-phy is grounded in our desire to deliver value for all stakeholders of the scheme and to do so through unrivaled customer focus. We therefore re-affi rm our commitment to our stakeholders for the important roles that each of you continues to play in ensuring the sustainability and success of the Scheme.

Additionally, I wish to thank the corporate administrator; our accomplishments in the year under review are as a result of your tireless eff orts and unwavering support.

Finally, I wish to express my gratitude to my fellow Trustees, who have been instrumental in providing stew-ardship and leadership towards the success of the scheme and we look forward to an even greater year, 2019. I have the utmost confi dence that Laptrust will continue to grow from strength to strength in the years to come.

God bless you all

Dr. George KwedhoBOARD CHAIRMAN LOCAL AUTHORITIES PENSION TRUST (LAPTRUST)


Schemes Value

Ksh.1.1 Billion Increase in net assets for the year

Shs 27.7 billion as at 31 December 2018

Shs 26.5 billion as at 31 December 2017

4.5 %Increase

Ksh.1.2 BillionNet return on investments

Shs 19.4 Billion Scheme Debt


The Board of Trustees have put in place a robust Enterprise Risk Management Framework (ERMF) to guide its core functions along the agreed risk appetite thresholds. Risk is an ever present occur-rence and has to be continually managed and contained.

HOSEA K. KILI, OGW

“

CORPORATE ADMINISTRATOR’S

REPORT

It is a great pleasure to present to you a review of the performance and operations of the Local Authorities Pension Trust (Laptrust Defi ned Benefi ts Scheme) for the year ended 31st De-cember, 2018.

Despite a tough year for the Financial Services sector and the Laptrust Defi ned Benefi ts scheme being a closed scheme (not registering any new members), the scheme posted positive results for its members.

Scheme Statistics

The scheme has 83 sponsors which comprise 47 em-ployers, being County Governments and 36 Water Companies and associated organizations.As at December 31st 2018, the Scheme active mem-bership stood at 20,074 compared to 20,936 in the previous year. This diff erence is attributable to ex-its from service (retirement) as well as natural at-trition. The scheme’s pensioners and benefi ciaries subsequently increased from 6,415 to 7,098 in the reporting period.

Debt Collection

The Scheme made considerable strides in addressing the issue of debt arising from unremitted members’ contributions. It is anticipated that this trend will continue and therefore bring the issue of huge outstanding debts to a proper conclusion in the medium term. The Scheme is also implementing the remedial action plan to re-duce the actuarial defi cit while at the same time bill-ing sponsors their respective portions of the defi cit, all aimed at reducing the current outstanding debt.

Risk Monitoring & Compliance

The Board of Trustees have put in place a robust En-terprise Risk Management Framework (ERMF) to guide its core functions along the agreed risk appe-tite thresholds. Risk is an ever present occurrence and has to be continually managed and contained. The Trust has used the Committee of Sponsoring Organization (COSO) enterprise risk management Standard and ISO 31000 as the benchmarks for its own ERMF. The Trust evaluates risks based on the following broad categories:


Risk Monitoring & Compliance (continued)

Governance & Strategy Risks - these risks may ham-per the Scheme’s Stakeholders and Members ho-listically if not well managed. Any risk that has far reaching eff ect on the Trust and its going concern as-sumption may be classifi ed under this category.

Financial & Funding Risks – these risks involve the Scheme’s ability to harness resources to run its op-erations as well as its ability to safeguard existing re-sources from loss, infl ation, and other economic and human factors.

Operational & Infrastructure Risks – these risks in-volve the three faceted approach of people, process-es and technology which essentially run the day to day Trust operations. A failure in any of these poses grave risk to the Scheme’s ability to meet its strate-gic objectives.

Compliance & Regulatory Risks – these risks involve possible non-compliance with industry regulations and Country Laws. The Trust is primarily regulated by the RBA and as such there are certain require-ments it should strictly adhere to.

The long outstanding pension contributions by key sponsors (under Finance & Funding risks) contin-ued to grow exponentially. This growth in outstand-ing pension contributions will hamper the Schemes ability to meet all its future pension obligations.

Corporate Administrator Report (continued)

The Trustees together with the Administrator are seeking a permanent solutions through discussions between the national government and county gov-ernments and their relevant agencies.

The Scheme continues to manage risks proactively and receives quarterly risk mitigation reports from the Corporate Administrator for discussion at the Board meetings. In relation to compliance with the industry regulator – the Retirement Benefi ts Au-thority, the Scheme, through its Corporate Adminis-trator, continued to lay great emphasis in ensuring compliance with all its regulatory requirements. The Scheme has made great progress in regards to imple-menting the diff erent remedial plans submitted to the regulator. The Scheme has also ensured that it is fully compliant with all relevant Laws, Regulations and Statutory requirements within the industry and indeed the republic.


Corporate Citizenship

The Laptrust Defi ned Benefi ts scheme endeavors to be a socially responsible corporate entity and as such, the scheme strives to meet all legal, ethical and economic responsibilities to its members, stakehold-ers and society. The scheme has adopted a socially responsible orientation based on the Environmental, Social and Governance (ESG) practices.

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.

Our Social Impact

Responsible operations and practices are integral to the scheme’s philosophy and approach. For us, it is about managing our assets in a way that creates sustainable value - in other words, to do well and do good. When we do ‘well’, we generate superior risk-ad-justed returns for our customers and shareholders and when we do ‘good' we have a positive impact on society and the communities where we live and work.

To this end, it is important to note that the scheme’s administrator is now a member of the United Na-tions Global Compact and as such, and in line with good governance practices, has adopted Integrated Reporting model in place of fi nancial reporting only. We have answered the call to align strategies and op-erations with universal principles on human rights, labor, environment and anti-corruption, and take ac-tions that advance societal goals.

Environmental Conservation

Our Corporate Social Responsibility (CSR) policy identifi es environmental conservation as one of three core pillars. In line with the CSR policy, the scheme was involved in Community support and develop-ment activities in the year under reporting, aimed at conserving the environment. Being a member’s scheme, we believe that this position carries with it both opportunity and responsibility.

Environmental Conservation (continued)

An opportunity to serve those within our sphere of infl uence, and a responsibility to be a good corporate citizen for the sustainability of our planet. Pursuant to this, we are committed to the pursuit of econom-ic opportunities while taking into consideration the social and environmental impact of our business op-erations.

In the year under review, Laptrust partnered with the Water Service Providers Association (WASPA) to concert eff orts towards the conservation of water towers in Kenya. This was borne out of the fact that forest cover only about 7% of Kenya’s land area, yet they provide crucial direct and indirect goods and services to its people besides making a signifi cant contribution to the national economy. About 70% of Kenya’s domestic energy comes from wood, for example, and out of the 20 million of fuel wood con-sumed annually, 95% is collected from forests and rangelands.

To this end, CPF was a key partner at the 9th edition of the Water Services Companies’ Sports Organiza-tion (WASCO) games that took place from the 20th to 26th of August 2018 in Nyeri County.

As a pre-event, and supported by the scheme, over 25,000 trees were planted at Zaina Forest in Tetu, Nyeri prior to the offi cial opening.

Corporate Administrator Report (continued)


Schemes Statistics

7,098 scheme’s pensioners and benefi ciariesas at 31 December 2018

6,415scheme’s pensioners and benefi ciariesas at 31 December 2017

20,074 Scheme active membershipas at 31 December 2018

20,936 Scheme active membershipas at 31 December 2017


The Local Authorities Pensions Trust (LAPTRUST) is committed to ensuring that its policies and prac-tices refl ect high standards of corporate governance requirements and best practices, which includes em-bracing the following principles:-

• To observe high standards of ethical and moral behavior. • To act in the best interests of members and stakeholders • To recognize the legitimate interests of all stakeholders.

The Board of Trustees is accountable to the Scheme Members, Sponsors, and Stakeholders (including the regulator, service providers among others) for good corporate governance. The principles and standards adhered to by the Board have been developed with close reference to guidelines on corporate govern-ance issued by the Centre for Corporate Governance, Institute of Certifi ed Secretaries of Kenya (ICS), Mwongozo (the Code of Governance for State Corpo-rations) and international best practices.

The Governance and Leadership Manual (Board Charter) is read in conjunction with the Local Au-thorities Pensions Trust Rules (Legal Notice No.50 of 2007) ,Legal Notice 136 of 2010, the Trustees (Per-petual Succession) Act Cap 164 of the Laws of Kenya, and the OECD Principles of Corporate Governance.

The Board Charter succinctly defi nes the Board’s roles and responsibilities as well as functions and structures in a way that supports the Board in car-rying out its strategic oversight function. It is a syn-opsis that details aspects like Board purpose, struc-ture and composition including the specifi c roles and responsibilities. The Charter also details the govern-ance processes used to fulfi ll the roles and responsi-bilities.

The Board Charter helps to defi ne the organization’s direction and to set operational goals that can be fol-lowed hence the development of the same is an im-portant activity for the Scheme since it provides an opportunity for members to gain a clear understand-ing of their individual and collective roles and how their role fi ts in helping the Scheme fulfi ll its purpose.

Corporate Governance Statement

The Board Charter also provides an opportunity for members to review and assess best practices and how applying these practices can support more ef-fective governance within the Scheme. In addition to providing clarifi cation for the Board, the Board Char-ter makes Board functions and operations transpar-ent to the public hence it can be used as the founda-tion for both the Board and public’s assessment of the Scheme’ performance in fulfi lling its roles and responsibilities.

The Board

he Board is a body corporate registered as ‘Local Au-thorities Pension Trust Registered Trustees’ under the Trustees (Perpetual) Succession Act Cap 164 of the Laws of Kenya with perpetual succession and common seal capable of;- Suing and being sued, ac-quiring, holding, charging and disposing of moveable and immovable property and entering into contracts.

The Board of Trustees is the Scheme’s governing body and is responsible for the corporate governance of the Scheme. Under the Law of Trusts, the Trustees are the legal owners of the Assets of the Scheme on behalf of the members and other benefi ciaries. The Scheme’s Corporate Administrator M/s CPF Finan-cial Services undertakes the day to day running of the scheme under the delegated mandate of the Board.

The Board of Trustees is constituted in accordance with the Local Authorities Pensions Trust Rules (Le-gal Notice No 50 of 2007) as modifi ed from time to time in accordance with the Regulations issued by the Retirement Benefi ts Authority. The composition of the Board is as prescribed under Rule 14 of the said Legal Notice, as amended by Legal Notice No.136 of 2010. The Board has four scheduled meetings each year but other meetings are called as and when nec-essary


NO NAME REPRESENTATION DATE OF APPOINTMENT

1 Charles Sunkuli Principal Secretary in the Ministry of Devolution & Asals August 2018

2 Calvin Nyachoti Law Society of Kenya21.08.15Exited the Board on 22.08.2018 after expiry of term

3 Festus Ngari Kenya County Governments Workers Union21.08.15Exited the Board on 22.08.2018 after expiry of term

4 Matilda Kimetto Kenya County Governments Workers Union 28.08.18

5 Joseph Leonard Owino Otina County Pensioners Association21.08.15Exited the Board on 22.08.2018 after expiry of term

6 Abdikadir Sheikh Hassan Association of County Governments of Kenya 01.02.16

7 Millicent Omukaga Institute of Certifi ed Public Accountants of Kenya;

01.02.16

8 Anne Njeri Mwangi Water Service providers Association 01.02.16

9 Hosea Kili CPF Financial Services Ltd (Administrator) 19.04.07

10 Micah Pkopus Powon Principal Secretary in the Department of Devolution & ASAL

Exited the Board in August 2018 upon appoint-ment of Mr. Sunkuli

Corporate Governance Statement (continued)

The Board (Continued)

Membership of the Board during the year was as outlined in Table 1 below;-

Table 1: Board of Trustees

Attendance at statutory & special meetings in 2018

NO Name 27.2.18 26.3.18 28.5.18 29.3.18 31.5.18 9.7.18 20.7.18 22.8.18 8.10.19 19.12.18

1 Calvin Nyachoti √ √ √ √ √ √ √ √

2 Festus Ngari √ √ √ √ √ √ √ √

3 Millicent Omuk-aga √ √ √ √ √ √ √ √ √ √

4 Anne Njeri √ √ √ √ √ √ √ √ √ √

5 Sheikh Ab-dikadir Hassan √ √ √ √ √ √ √ √ √ √

6 Matilda Kimetto Was not a Board member of then √ √

7 Hosea Kili √ √ √ √ √ √ √ √ √ √

8 Charles Sunkuli Was not a Board member of then

9 Joseph Leonard Otina √ √ √ √ √ √ √ √

10 Micah Pkopus Powon There were various changes in the respective Ministry and hence the gap.

The cur-rent PS attended the two meetings



Board of Trustees Responsibilities

The primary role of the Board is to ensure long-term wealth and prosperity of the Scheme for the benefi t of members/customers, employees, sponsors and other stakeholders.

The Board is responsible for policy formulation; In-vestment of Scheme funds; Scheme Administration, Payment of benefi ts to persons entitled to such bene-fi ts under the Scheme Rules; Protection of the prop-erty and assets of the Scheme; Performance of such other duties as may be necessary for the due and faithful performance of the Scheme’s obligations.

Certain functions are delegated to committees as de-tailed below. The Board generally meets Four times a year (Once every quarter) and additionally when necessary, to consider all matters relating to the overall control, business performance and strategy of the Scheme and in succession planning.

The Chairman chairs the Board whereas the Corpo-rate Administrator provides secretarial services and handles the day to day management aspect of the Scheme.

Board Independence

The Board has set a structure and standards to en-sure the Trustees are independent. The fundamental premise of the standards is that any Trustee is free of any business or other relationship that could mate-rially interfere with exercising of their independent judgment.

The roles of the Trustees and the Scheme Corporate Administrator are separate. The Board Chairman provides overall leadership to the Board without limiting the principles of collective responsibility for Board decisions. The Scheme Corporate Administra-tor is responsible to the Board and takes responsibil-ity for the eff ective and effi cient management of the Scheme. The Board evaluates the performance of the Scheme Corporate Administrator to ensure this is in tandem with the principal objectives of the Scheme.

Board Committees

The Board Committees are constituted by the Board in accordance with the provisions of the Trust Deed & Rules (L.N 50 of 30th March 2007), which sets out the responsibilities delegated by the Board to the Committee and the Committee’s structure and oper-ation.

The Board has established three permanent Commit-tees to assist in the execution of its responsibilities. Each Committee reports to the Board.

The role of a Committee is to operate within the terms of its charter and to make recommendations to the Board for ratifi cation or to determine on behalf of the Board certain matters with prior approval of the Board. Each Committee meets regularly under terms of reference set by the Board in their respective Com-mittee Charters.

The details of each Committee including composition and roles are as set out below:-;-

1. Procurement Oversight & Projects Committee

The Committee comprised of four (4) Trustees. It is mandated to formulate and review procurement pol-icies and approve the Scheme’s annual procurement plan in accordance with the Internal Procurement Policies.

The Committee comprised of the following members; 1. Ms. Anne Mwangi; 2. Mr. Joseph Leonard Otina- (served until his exit on 22.08.18); 3. Ms. Matilda Kimetto- (joined the commit tee on 28.08.18); 4. Mr. Hosea Kili. OGW

Attendance at meetings in 2018

Name 6.02.18 19.02.18 7.05.18 7.08.18 4.12.18

Anne Mwangi √ √ √ √ √

Joseph Leonard Otina √ √ √ √

Matilda Kimetto Was not a Committee member then √

Hosea Kili √ √ √ √ √



Board Committees (Continued)

2. Finance, Investments & Operations Committee

The committee comprised four (4) Trustees. It is mandated to review and make recommendations on the Scheme’s Investments, Financial and account-ing policies, review and make recommendations on the Scheme’s annual Budget, oversight of the over-all Investment policy of the Trust and deliberate and consider the Fund & Custodian Managers quarterly reports. The committee also reviews and considers all issues that may materially impact the present and future quality of the Scheme’s Finance function as well as the quality of the pension portfolio and ensure compliance with RBA investment guidelines. The committee also reviews, approves and monitors the management’s compliance with applicable statutory provisions, Scheme’s policies and guidelines relating to the monitoring of the pensions market.

The Committee comprised of the following members: 1. Mr. Festus Ngari (served until his exit on 22.08.18); 2. Ms. Millicent Omukaga 3. Ms. Anne Mwangi 4. Ms. Matilda Kimetto -(joined the commit tee on 28.08.18); 5. Mr. Hosea Kili, OGW


Name 15.02.18 11.05.18 7.08.18 13.12.18

Festus Ngari √ √ √

Millicent Omukaga √ √ √ √

Anne Mwangi √ √ √ √

Matilda Kimetto Was not a Committee mem-ber then √

Hosea Kili √ √ √ √

Board Committees (Continued)

3. Audit & Risk Management Committee

This committee comprises of four (4) Trustees and one co-opted member. It is mandated to raise the standards of corporate governance by reviewing the quality and eff ectiveness of the internal control sys-tems, the internal and external audit functions and the quality fi nancial reporting. In addition to advis-ing the Board on best practice, the committee also monitors management’s compliance with relevant legislation, regulations and guidelines as well as the Scheme’s laid down policies and procedures. The Au-dit function reports directly to the Audit & Risk Man-agement Committee. In the ensuing year the commit-tee received and reviewed the fi ndings of the internal and external audit reports and management’s action to address them.

The Committee comprises of the following; 1. Abdikadir Hassan; 2. Joseph Leonard Otina; - (served until his exit on 22.08.18); 3. Matilda Kimetto-(joined the committee on 28.08.18); 4. Taslim Wason – Co-opted Audit Committee Member 5. Hosea Kili,OGW – By invitation


Name 29.01.18 15.03.18 08.05.18 08.08.18 14.12.18

Mr. A. Hassan √ √ √ √ √

Mr. L. Otina √ √ √ √

Ms. M. Kimeto Was not a Committee mem-ber then √

Mr. H. Kili √ √ √ √ √

Ms. T. Wason √ √ √ √ √

All Members of the Board receive regular and timely information about the Scheme prior to Board meetings. They also have access to the Board Secretary for any further information they may require. The Board Secre-tary ensures that Board and Committee meetings are convened as per the approved Annual Board Calendar and that the resolutions of the Board are implemented as guided and /or approved by the various Board and Committee meetings.

The Board Secretary ensures that the Board members receive briefi ngs on changes in regulation or law, as circumstances require.



Information and professional development

Keeping up-to-date with key business developments is essential for the Trustees to maintain and enhance their eff ectiveness. From time to time the Board re-ceives presentations from the Fund Managers, Cus-todians, Actuary and Legal Advisors on matters of signifi cance. The Corporate Strategy, Financial plans, including budgets and forecasts are regularly discussed at Board meetings.

The Chairman is responsible for ensuring that induc-tion and training programmes are provided and the Board Secretary organizes the programmes. As part of the performance evaluation, Trustees are given the opportunity to discuss training and development needs. Individual Trustees are also expected to take responsibility for identifying their training needs and to take steps to ensure that they are adequately informed about the Scheme and their responsibilities as a Trustee. Trustees have been trained on the Man-datory Trustees Certifi cation Training as per the Re-tirement Benefi ts Authority’s requirements.

The Board is confi dent that all its members have the knowledge, ability and experience to perform the functions required of a Trustee.

Board Performance Evaluation

The Board of Trustees is the cornerstone of the Scheme’s model of corporate governance. We believe that an eff ective board ensures that the Scheme is managed in the long-term interests of member and benefi ciaries. We acknowledge the fact that over time, a board may become complacent or may need new skills and perspectives to respond nimbly to changes in the business environment or strategy. Regular and rigorous self-evaluations help a board to assess its performance and identify and address potential gaps in the boardroom. In that regard, the Board has established the method and frequency of performance measurement. The Board undertakes an annual evaluation of its performance and eff ec-tiveness in order to identify the areas for improve-ment and addresses them. The performance evalua-tion is conducted through an independent party and the report of the evaluation is discussed and adopted by the Board. In 2018, the Board evaluation was con-ducted as required and the key fi ndings thereto sub-sequently discussed with the Board.

Board Chairman

The Chairman of the Board, is responsible for leading the Board in the performance of its duties. The role of the Chairman includes facilitating the eff ective contribution of all trustees and promoting communi-cation and respectful relations between the trustees and between the Board and other stakeholders. In addition, during meetings, the Chair plays a key role in ensuring that there is a balance between overall strategy-setting and fi nancial and managerial super-vision of the Scheme, inter alia.

Awards & Recognition

The scheme received numerous accolades over the course of the year. Some of the noteworthy awards received are highlighted below:

Champions of Governance Award:Awarded by the Institute of Certifi ed Secretaries of Kenya (ICS), the champions of governance awards seek to honor institutions and individuals that exhib-it the highest standards of practice of good govern-ance. The scheme administrator was recognized as the Winner, in the Retirement Benefi ts Sector.

Real Estate Excellence Awards:The Real Estate Excellence Awards are meant to recognize and celebrate the key players in various realms of the real estate sector who have over the years achieved excellent results and have positively impacted the lives of their clients. Freedom Heights, a project by the Laptrust Scheme, was feted for: Up-coming Retail Property 2018.

Annual Report and Financial Statements 25Annual Report and Financial Statements 2525Annual Report and Financial Statements

Awards & Recognition

Pension Awards 2017Board of Trustees of the Year

Champions of Governance Awards 2017Best Institution, Retirement Benefi ts Sector

25252525



Future Outlook

The Scheme’s countrywide reach, a strong asset base and a robust composition of the Board of Trustees remain a real asset for the Scheme. The key pillars of the 2018-2020 Strategic Plan will continue to guide us in the execution of the scheme’s mandate, under the guidance of the Board of Trustees.

We are optimistic that the Scheme sponsors and indeed all stakeholders will in the coming period play a more active role in resolving the outstanding debt owed to the Scheme by its sponsors – the County Governments and other associated organizations. While a majority of the sponsors continue to make an eff ort, however in-termittent, to remit current contributions, great eff ort will be directed at collecting current contributions and debt management to ensure the Scheme does not continue to accrue any further debt. We shall also continue exploring ways of improving the scheme funding levels to the recommended percentages in our role of ensur-ing full compliance to RBA regulations by the scheme.

Appreciation

I wish to express my sincere gratitude to the Board of Trustees for their leadership and guidance throughout the year. It is often said that an organization is only as good as its leadership; and this Scheme has certainly been a benefi ciary of good leadership. To the Scheme members and sponsors, thank you for your continued support. To fellow service providers of the Scheme, we are proud to work with you in the various aspects to deliver the desired results for the Scheme. Thank you all.

Hosea K. Kili, OGW GROUP MANAGING DIRECTOR/CEOCPF FINANCIAL SERVICES LTDTHE SCHEME CORPORATE ADMINISTRATOR31 MARCH 2018


Report of the Trustees

The Trustees present their report together with the audited fi nancial statements for the year ended 31 Decem-ber 2018.

Establishment, nature and purpose of the Scheme

The Local Authorities Pension Trust, formerly Kenya Local Government Offi cers Superannuation Fund was established under the Local Authorities Pension Trust Rules, Legal Notice No. 50 of March 2007.

The Scheme is an umbrella retirement benefi ts Schemes and was registered with the Retirement Benefi ts Au-thority on 11 April 2007.

The Scheme is a Defi ned Benefi ts Scheme and provides, under the rules of the Scheme, retirement benefi ts for the staff of the defunct local authorities and now county governments, associated organizations, and approved reciprocating bodies as provided in the Scheme’s rules. It is a tax exempt approved Scheme under the Income Tax Act.

The principal objective of the Scheme is to provide pension and other retirement benefi ts to employees of the sponsors and other individual and associated members of the Scheme upon their retirement from service and relief for the dependants of the deceased employees.

Results for the year

The results for the Scheme for the year ended 31 December 2018 is analysed as follows:

2018Shs’000

2017Shs’000

Net surplus from dealings with members 4,331,240 3,290,067

Net returns on investments 1,206,019 2,197,551

Administrative expenses (1,327,490) (1,115,867)

Impairment of debts (3,089,309) (1,733,790)

Impairment of deposit (12,620) -

Increase in net assets during the year 1,107,840 2,637,961

Membership

The Scheme has 83 sponsors which comprise of 47 employers, who are the county governments and 36 asso-ciated organizations and other approved reciprocating bodies.

The Scheme’s membership was as follows:

Active Member 2018

No2017

NoContributing or active members At 1 January 20,936 21,636

Withdrawals (862) (700)

At 31 December 20,074 20,936



Membership (Continued)

Active Member

2018No

2017No

At 1 January 6,415 5,785

Contributing members who retired 648 504

Widows/widowers 175 179

Deaths & trivial pension (140) (53)

At 31 December 7,098 6,415

Contributions

The contribution rates are expressed as a percentage of the employees’ basic salary and housing allowance. Rates in use for the year ended 31 December 2018 and 31 December 2017 were:

Employer 15%

Employee 12%

27%

Custody services

Custodial services are performed by Standard Chartered Security Services Limited, Equity Bank Limited Cus-tody Services and Kenya Commercial Bank Limited Custody Services.

Financial performance

The Scheme’s value as at 31 December 2018 was Shs 27.7 billion, from Shs 26.5 billion as at 31 December 2017, representing an increase of 4.5 %. This is below the target level of Shs 40 billion. Increase in net assets for the year was Shs 1.1 billion compared to the projected increase of Shs 3.3 billion as per the budget for the year under review. The increase was as a result of contributions received and investment income. This increase was however diluted by additional provisions for the outstanding contributions from sponsors totaling Shs 3 billion made during the year.

Contributions revenue inclusive of interest on late contributions and actuarial defi cit increased by 24.1 %, to Shs 6.7 billion at 31 December 2018 as compared to Shs 5.4 billion in the year ended 31 December 2017.

The Trust expects to show better performance in 2019, particularly if the fund’s equity investments continue to perform well. The sale of mature land banks and property restructuring will also unlock some of the unreal-ized gains on the property, and increase the Trust’s liquidity as we expect more payouts, following the end of the 5 year retirement extension age.

The day-to-day management of the investments of the Trust is carried out by the investments managers.

Under the terms of their appointment, the investment managers are responsible for day to day management of investment funds. However, the overall responsibility for investment and performance outcomes lies with the Trustees.



The Scheme’s assets position at 31 December 2018 was as follows:


2018Value

Shs’000

% RBA%maximum

requirement

2017Value

Shs’000

% RBA%maximum

requirementInvestment portfolio

Cash and bank balances 247,465 0.84% 5% 212,970 0.76% 5%

Short term deposit 933,520 3.17% 30% 849,881 3.02% 30%

Kenya Government Securities 10,864,307 36.95% 70% 10,353,802 36.77% 70%

Corporate bond and REITS 560,365 1.91% 30% 623,534 2.21% 30%

Quoted investments 2,574,441 8.76% 70% 3,053,910 10.85% 70%

Unquoted investments 1,421,835 4.84% 5% 1,561,086 5.54% 5%

Immovable property 12,757,301 43.39% 30% 11,497,954 40.83% 30%

Private equity 10,746 0.04% 5% 6,344 0.02% 5%

Off shore investments 32,632 0.11% 15% - - 15%

Totals 29,402,612 100% 28,159,481 100%

Other assets 2,786,983 2,858,500

Total assets 32,189,595 31,017,981

Assets management

Other assets relate to principal pension contributions and accrued interest on contribution receivable net of provisions and were all due from the sponsors as at end of the year.

Unquoted investments include investment in unquoted shares of Shs 696,255,000 (2017: Shs 835,506,000) in Family Bank Kenya Limited, Shs 680,800,000 (2017: Shs 680,800,000) investment in subsidiary company, CPF Financial Services Limited and Shs 44,780,000 (2017: 44,780,000) in Consolidated Bank of Kenya

We confi rm that there is no self-investment, nor have any Scheme assets been used as security or collateral on behalf of the employer or any connected business or individual.

Unremitted contributions

The amounts due from three main sponsors who constitute 86% of the outstanding debt as at 31st December, 2018 is as indicated below:

SponsorPost - Devolution Debt

Mar 2013 - Dec 2018 (Shs)

Pre-Devolution Debt As at 31st - Mar-2013

(Shs)

Totals(Shs)

Nairobi City County 10,070,145,605 4,543,513,476 14,613,659,081

Mombasa County 1,097,077,989 1,476,124,832 2,573,202,821

Nairobi City Water &Sewerage Co. 689,821,713 1,550,303,410 2,240,125,123

Totals 11,857,045,307 7,569,941,718 19,426,987,025


The eff ect of the above unremitted contributions led to more provisions which resulted in the decrease in the receivables which had a negative eff ect on the fund value. The remaining 14% of the debt is owed from the other county governments.

Measures Taken by Trustees on collection

The Board have been engaging defaulting sponsors with a view of having a debt settlement agreement. The Board have also been able to control further buildup of debt by collecting the current contributions in full from most of the sponsors. The Board through the engagement of the debt collectors have managed to have Nairobi County Government and Mombasa County Government among to start monthly remittances to reduce the out-standing debt. Audit of assets and liabilities of the former municipalities and county councils was completed and debt owed to the scheme was captured and consideration is to explore ways of liquidating the debt. The board has engaged inter- governmental agencies, controller of budget and treasury on possible recovery of the debt at source.The Trustees have engaged the regulator in view of the implementation of the new regulations on unpaid con-tributions. The Trustees have circulated the list of all sponsors (debtors) to the regulator for enforcement. This will go a long way in reducing the contributions debt.

Pension Reviews

The Trustees will undertake pension reviews based on the actuarial advisory, given the current funding level no pension increase was eff ected.

Trustees

The Trustees are nominated by the stakeholders and appointed by the Cabinet Secretary, Planning and Devo-lution for a term of three years in accordance with RBA Act and Scheme rules and regulations. The names of the current Trustees are shown on page 5.

Auditors

PricewaterhouseCoopers were appointed last year and have expressed their willingness to continue in offi ce in accordance with the Retirement Benefi t Act.

Signed on behalf of the trustees.

Trustee TrusteeHosea Kili Matilda J.Kimetto28/3/2019 28/3/2019




The Retirement Benefi ts (Occupational Retirement Benefi t Schemes) Regulations, 2000 require the Trustees to prepare fi nancial statements in a prescribed form for each fi nancial year. They also require the Trustees to ensure that the Scheme keeps proper accounting records of its income, expenditure, liabilities and assets, and that contributions are remitted to the Custodian in accordance with the rules of the Scheme.

The Trustee accept responsibility for the preparation and fair presentation of fi nancial statements that are free from material misstatements whether due to fraud or error. The Trustee also accept responsibility for:

• Designing, implementing and maintaining internal control as they determine necessary to enable the preparation of fi nancial statements that are free from material misstatements, whether due to fraud or error.

• Selecting and applying appropriate accounting policies and then applying them consistently; and• Making accounting estimates and judgements that are reasonable in the circumstances.

The Trustee is of the opinion that the fi nancial statements give a true and fair view of the net assets available for benefi ts and changes in net assets available for benefi ts and the cash fl ows in accordance with International Financial Reporting Standards and the Retirement Benefi ts (Occupational Retirement Benefi t Schemes) Reg-ulations, 2000.

Having made an assessment of the Scheme’s ability to continue as a going concern, the Trustees are not aware of any material uncertainties related to events or conditions that may cast doubt upon the Scheme’s ability to continue as a going concern.

The Trustees acknowledge that the independent audit of the fi nancial statements does not relieve them of their responsibility.

Approved by the Board of Directors of the Trustees on 28/3/2019 and signed on its behalf by:

Trustee TrusteeHosea Kili Matilda J.Kimetto

Statement of Trustees’ Responsibilities


Opinion

We have audited the accompanying fi nancial statements of Local Authorities Pension Trust (the “Scheme”) set out on pages 36 to 68 which comprise the statement of net assets available for benefi ts at 31 December 2018 and the statement of changes in net assets available for benefi ts and statement of cash fl ows for the year then ended and a summary of signifi cant accounting policies and other accounting notes.

In our opinion, the fi nancial statements give a true and fair view of the fi nancial position of Local Authorities Pension Trust at 31 December 2018, and of its fi nancial performance and cash fl ows for the year then ended in accordance with International Financial Reporting Standards.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the fi nancial state-ments section of our report.

We are independent of the Scheme in accordance with the International Ethics Standards Board for Account-ants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the fi nancial statements in Kenya, and we have fulfi lled our ethical responsibilities in accordance with these requirements and the IESBA Code.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our opinion.

Other information

The Trustees are responsible for the other information. The other information comprises information included in the annual report but does not include the fi nancial statements and our auditor’s report thereon.

Our opinion on the fi nancial 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 fi nancial statements, our responsibility is to read the other information identifi ed above and, in doing so, consider whether the other information is materi-ally inconsistent with the fi nancial 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, 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.

Independent Auditors’ Reportto the members of Local Authorities Pension Trust

PwC Tower, Waiyaki Way/Chiromo Road,

Westlands

P O Box 43963 – 00100 Nairobi, Kenya

Telephone: +254 (20)285 5000

Fax: +254 (20)285 5001 www.pwc.com/ke


Independent Auditors’ Reportto the members of Local Authorities Pension Trust

Responsibilities of the Trustees for the fi nancial statements

The Trustees are responsible for the preparation of fi nancial statements that give a true and fair view in ac-cordance with International Financial Reporting Standards and the requirements of the Retirement Benefi ts (Occupational Retirement Benefi t Schemes) Regulations, 2000 and for such internal control as the Trustees determine is necessary to enable the preparation of fi nancial statements that are free from material misstate-ment, whether due to fraud or error.

In preparing the fi nancial statements, the Trustees are responsible for assessing the Scheme’s ability to contin-ue 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 Scheme or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the fi nancial statements

Our objectives are to obtain reasonable assurance about whether the fi nancial 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 ISAs 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 expect-ed to infl uence the economic decisions of users taken on the basis of these fi nancial statements.

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

• Identify and assess the risks of material misstatement of the fi nancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi cient 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 eff ectiveness of the Fund’s internal control.

• 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 signifi cant doubt on the Fund’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the fi nancial state-ments or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evi-dence 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 fi nancial statements, including the disclosures, and whether the fi nancial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Trustees regarding, among other matters, the planned scope and timing of the audit and signifi cant audit fi ndings, including any signifi cant defi ciencies in internal control that we identify during our audit.

Certifi ed Public Accountants 29/3/ 2019 Nairobi

FCPA Richard Njoroge, Practising Certifi cate No.1244.Signing partner responsible for the independent audit


2018FINANCIAL

STATEMENTS

2018FINANCIAL

STATEMENTS


Notes 2018Shs‘000

2017Shs‘000

Contributions and withdrawals

Contributions 3 6,682,930 5,449,150

Withdrawals 4 (2,351,690) (2,159,083)

Net surplus from dealings with members 4,331,240 3,290,067

Return on investments

Investment income 5 1,777,196 1,776,348

Gain on realisation of investments 6 68,680 94,404

Other income 7 5,873 8,072

Investment management expenses 8 (216,084) (267,955)

Fair value loss on revaluation of investments 12 (317,423) 590,266

Fair value loss on investment property 27 (112,223) (3,584)

Net returns on investments 1,206,019 2,197,551

Administrative expenses 10 (1,327,490) (1,115,867)

Impairment of recievables 11 (3,101,928) (1,733,790)

Increase in net assets for the year 1,107,841 2,637,961

Net assets at 1 January 26,542,193 23,904,232

Net assets at 31 December 29 27,650,034 26,542,193

Statement of Changes in Net Assets Available for Benefi tsFor the year ended 31 December 2018


Notes 2018Shs‘000

2017Shs‘000

Cash and bank balances 13(a) 247,465 212,970

Fixed deposits 14 933,520 849,881

Government securities (Treasury bills) 15 1,343,280 811,972

Government securities (Treasury bonds) 16 9,521,027 9,541,830

Real Estate Investment Trust 17 27,375 26,750

Corporate bond 18 532,990 596,784

Receivables and accrued income 19 2,786,870 2,856,446

Quoted investments 25 2,574,441 3,053,910

Private equity 10,746 6,344

Unquoted investment 26 1,421,835 1,561,086

Investment property 27 12,757,301 11,497,954

Off shore investments 32,632 -

Fixed assets 23 113 -

Intangible asset 24 - 2,054

32,189,595 31,017,981

Liabilities

Payables and accruals 28 (4,539,561) (4,475,788)

Net Assets 27,650,034 26,542,193

Fund Balance 29 27,650,034 26,542,193

The fi nancial statements on pages 36 to 68 were approved and authorized for issue by the Board of Trustees on 27th March 2018 and were signed on their behalf by:

Trustee TrusteeHosea Kili Matilda J.Kimetto

Statement of Net Assets Available for Benefi tsFor the year ended 31 December 2018


Notes 2018Shs‘000

2017Shs‘000

Cash fl ows from operating activities

Contributions received 3,768,512 2,206,572

Other income 5,873 8,072

Withdrawals paid (2,401,440) (2,153,977)

Administrative expenses paid (1,324,279) (1,108,584)

Movement in other receivable and payable (39,230) 1,129,134

Net cash generated from operating activities 9,436 81,217

Cash fl ows from investing activities

Investment income received 1,792,584 1,784,421

Investment management expenses paid (219,405) (287,290)

Purchase of government securities – available for sale 16 (959,277) (2,967,126)

Purchase of quoted equity investments 25 (158,062) (614,955)

Purchase of corporate bonds (43,447) (35,400)

Purchase of treasury bills (1,968,200) (1,852,615)

Additions to investment property (1,739,570) (1,236,183)

Purchase of fi xed and call deposits (8,088,274) (2,279,500)

Off shore Investment (40,000) -

Private Equity Investments (4,402) (6,344)

Proceeds from sale of property 368,750 -

Proceeds from sale of equity investments 144,963 342,540

Proceeds from sale of government securities available for sale 16 1,299,511 1,872,736

Proceeds from sale of corporate bonds 46,557 247,158

Proceeds from sale of treasury bills 1,446,557 2,041,313

Proceeds from sale of fi xed and call deposits 8,000,800 2,190,300

Proceeds from property sale deposits 224,057 154,020

Prepaid rent 5,556 -

Net cash generated from investing activities 108,698 (646,925)

Increase in cash and cash equivalents 118,134 (565,708)

Cash and cash equivalents at 1 january 1,062,851 1,628,559

Cash and cash equivalents at 31 December 13(b) 1,180,985 1,062,851

Statement of Cash FlowsFor the year ended 31 December 2018


Notes to the Financial StatementsFor the year ended 31 December 2018 (Continued)

1. ACCOUNTING POLICIES

Statement of compliance

The fi nancial statements are prepared in accordance with International Financial Reporting Standards (IFRS). The principal accounting policies adopted are set out below:

Adoption of International Financial Reporting Standards number 9 (IFRSs)

(i) New standards and amendments adopted by the Scheme

IFRS 9, ‘Financial instruments’

This new standard came into eff ect on 1 January 2018 and governs recognition, classifi cation and measure-ment basis and credit impairment assessment on fi nancial instruments. In addition, credit impairment pro-visions are now made for either 12-month or lifetime expected credit losses (ECLs) for all fi nancial assets measured at amortised cost, lease receivables, and debt instruments measured at fair value through other comprehensive income. The directors have opted to apply the simplifi ed approach for trade receivables where-by lifetime ECL are provided for from inception.

The adoption of IFRS 9 resulted in changes to the classifi cation and measurement of the following classes of fi nancial assets:

Financial Assets Original classifi cation under IAS 39 New classifi cation under IFRS 9Cash and bank Loans and receivables Amortised cost

Receivables Loans and receivables Amortised cost

Other fi nancial assets

There was no material impact on the classifi cation and measurement of fi nancial instruments as the Scheme’s assets are mainly investments, which are required to be measured at fair value under International Account-ing Standard (IAS) 26: Accounting and Reporting by Retirement Benefi t Plans. As such, all fi nancial assets, with the exception of receivables were held at fair value through the statement of changes in assets available for benefi ts under IAS 39 and continue to be classifi ed and measured as such under IFRS 9.

Impairment of fi nancial assets

In relation to the impairment of fi nancial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. In particular, IFRS 9 requires the Scheme to measure the loss allow-ance for a fi nancial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that fi nancial instrument has increased signifi cantly since initial recognition, or if the fi nancial instrument is a purchased or originated credit-impaired fi nancial asset.

IFRS 9 also requires a simplifi ed approach for measuring the loss allowance at an amount equal to lifetime ECL for receivables. Specifi cally, IFRS 9 requires the Scheme to recognise a loss allowance for expected credit losses on its fi nancial assets.

The Scheme has used the general approach method and applied the 12 month ECL on Cash and Bank balances and Deposits with fi nancial institutions. There were no signifi cant changes to warrant any adjustments to the statement of changes in net assets available for benefi ts at 1 January 2018.



1. ACCOUNTING POLICIES (Continued)

Basis of preparation

The fi nancial statements are prepared under the historical cost convention modifi ed to include the revaluation of certain assets.

Investment income

Interest income is accrued on a timely basis, by reference to the principal outstanding and the eff ective inter-est rate applicable.

Contributions and withdrawal benefi ts

Contributions receivable and withdrawal benefi ts payable are recognised in the period in which they fall due. Forfeited benefi ts are recognised as income in the statement of changes in net assets available for benefi ts, when the member forfeits his/her right, wholly or partly, to claim the employer’s contributions.

Withdrawals are charged to the statement of changes in net assets available for benefi ts when they fall due, which is determined by reference to the date when the administrator receives validated benefi ts claim docu-ments from a retiring member.

Translation of foreign currencies

Monetary assets and liabilities in foreign currencies are translated into Kenya Shillings at the rates of ex-change ruling at the end of each reporting date. Transactions during the year are translated at the rates ruling when the transactions are eff ected. Gains and losses arising from the translations are dealt with in the state-ment of changes in net assets available for benefi ts.

Investment property

Investment property which is property held to earn rentals and/or capital appreciation, is measured initially at cost, including transactions costs. Subsequent to initial recognition, investment property is measured at fair value. Gains and losses arising from changes in the fair value of investment property are dealt with in statement of changes in net assets available for benefi ts.

Rental income

Rental income is recognized in the period in which it is earned.

Dividend income

Dividend income from investment is recognized when the Scheme’s right to receive payment as a shareholder has been established.

Taxation

The Scheme is a registered defi ned benefi t Scheme and is exempt from income taxation.




Financial instruments (Continued)

I Recognition

Financial assets and liabilities are recognized when the Scheme becomes a party to the contractual provisions of the instrument.

II Classifi cation and measurement

The Scheme classifi es its fi nancial assets into the following categories:

i) Receivables

Receivables are fi nancial assets with fi xed or determinable payments and are not quoted in an active market. After initial measurement at cost, receivables are subsequently remeasured to amortised cost using the eff ective interest rate method, less allowance for impairment as per the provision of IFRS 9. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the eff ective interest rate.

ii) Financial assets at fair value through profi t or loss (FVTPL)

Financial assets at fair value through profi t or loss are those which were either acquired for generating a profi t from short-term fl uctuations in price or dealer's margin, or are securities included in a portfolio in which a pattern of short-term profi t-taking exists. Investments classifi ed as fair value through profi t or loss are initially recognised at cost and subsequently re-measured to fair value based on quoted bid prices or dealer price quotations, without any deduction for transaction costs. All related realised and unrealised gains and losses are included in the statement of changes in net assets available for benefi ts. Interest earned whilst holding held for trading investments is reported as investment income.

Those securities that have a fi xed redemption value and that have been acquired to match the obliga-tions of the plan, or specifi c parts thereof, may be carried at amounts based on their ultimate redemp-tion value assuming a constant rate of return to maturity. Where plan investments are held for which an estimate of fair value is not possible, such as total ownership of an entity, disclosure is made of the reason why fair value is not used. To the extent that investments are carried at amounts other than market value or fair value, fair value is generally also disclosed.

ii) Financial assets at amortized cost

Assets that are held for collection of contractual cash fl ows where those cash fl ows represent solely pay-ments of principal and interest are measured at amortised cost. Interest income from these fi nancial assets is included in investment income using the eff ective interest rate method. Any gain or loss aris-ing on derecognition is recognised directly in statement of changes in net assets available for benefi ts together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of changes in net assets available for benefi ts.





Short term deposits

Short term deposits are classifi ed as held to maturity and are stated at amortized cost.

Government securities

Government securities comprise treasury bills and treasury bonds, which debt securities are issued by the Government of Kenya. Treasury bonds are classifi ed as fair value through profi t or loss and stated at fair value. The designation of treasury bonds as fair value through profi t or loss is done at the point of initial recognition.

Corporate bonds

Investments in corporate bonds are classifi ed as fair value through profi t or loss and are stated at the fair value as at the end of each reporting date.

Quoted investments

Quoted investments are classifi ed as fair value through profi t or loss and are stated at the fair value as at the end of each reporting date.

Off -shore investments

The off -shore investments represent pooled investments in various unit Scheme funds in world stock markets. These investments are classifi ed as fair value through profi t or loss and are stated at fair value.

Unquoted investments

Unquoted investments represent the investment in shares of unlisted companies. They are classifi ed as unquoted equities and are carried at fair value, where fair value can be determined, otherwise carried at cost.

Receivable

Accounts receivable are carried at their original invoiced amount less an estimate for impairment based on the review of all outstanding amounts at year end. Bad debts are written off when all reasonable steps to recover them have failed.





Financial liabilities

Financial liabilities are recognized initially at cost, and subsequently measured at amortised cost.

Accounts payable

The liabilities for accounts payable are carried at cost, which is measured at the fair or contractual val-ue of the consideration to be paid in future in respect of goods and services supplied by the suppliers, whether billed or not to the Scheme.

Cash and cash equivalents

For purpose of the cash fl ow statement, cash and cash equivalents includes bank and cash balances and short term fi xed deposits.

Members’ balances

Members’ funds comprise the accumulated net surpluses or defi cits realized from dealings with members’ and surpluses or defi cits 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 benefi ts.

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 diff erence between the sales proceeds and the carrying amount of the asset and is recognized in statement of changes in net assets available for benefi ts.

Fair value

For fi nancial instruments trade in an organized fi nancial market, fair value is determined by reference to quot-ed prices.



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

COUNTING POLICIES

In the process of applying the Scheme’s accounting policies, Trustees have made estimates and assumptions that aff ect the reported amounts of assets and liabilities within the next fi nancial 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:

Impairment losses on fi nancial assets

At the end of each reporting period, the Scheme reviews its assets based on a model to assess expected losses and as such, the recoverable amount of the asset is estimated and an impairment loss is recognised in the state-ment of changes in net assets available for benefi ts.

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 statement ever received from the sponsor.

3. CONTRIBUTIONS

2018Shs‘000

2017Shs‘000

Employers 15% 2,239,234 2,287,171

Members 12% 1,948,946 1,269,509

Interest on late contributions* 2,494,750 1,892,470

6,682,930 5,449,150

* Interest on late contributions relates to amounts charged on outstanding contributions as required by the Scheme regulations. The interest is charged at a rate of 1.25% per month on a compounded interest basis. The interest is calculated on a daily basis but accrued monthly in arrears.


4. WITHDRAWALS

2018Shs‘000

2017Shs‘000

Monthly pensions 720,304 635,532

Commutations and lump sum retirement benefi ts 1,066,833 1,037,025

Trivial pension 13,666 18,776

Refunds to members leaving service (unvested) 351,430 202,974

Deferred payments 15,943 17,697

Risk based premium* 183,514 247,079

2,351,690 2,159,083

*Risk based premium paid is in respect of insurance of members i.e. Group Life Assurance, last expense, crit-ical illness, unemployment benefi t and permanent total disability. During the year 2018, the Scheme paid pre-mium of Shs 183.51 million (2017 – Shs 247.08 million) upon which reported claims as at 31st December 2018 amounted to Shs 231.7 million (2017 –Shs 255.5 million).

5. INVESTMENT INCOME

2018Shs‘000

2017Shs‘000

Interest on government securities held to maturity 108,601 129,562

Interest on short term deposits held to maturity 64,200 28,147

Interest on government securities through profi t and loss 1,140,154 1,012,594

Interest on corporate bonds held to maturity 24,179 89,058

Dividends receivable 143,948 143,961

Real Estate Investment Trust interest 1,875 1,250

Rent income 294,239 371,776

1,777,196 1,776,348

6. LOSS/GAIN ON REALISATION OF INVESTMENTS

2018Shs‘000

2017Shs‘000

Gain on sale of Government Securities 1,959 59,643

Loss on sale of equities (8,523) (4,923)

Gain on sale of other Investments 47,414 39,684

Gain on sale of properties 27,830 -

68,680 94,404



7. OTHER INCOME

2018Shs‘000

2017Shs‘000

Interest income on bank balances 224 428

Tender fees 9 76

Agent commission on purchase of bonds 484 7,568

Decrease in provision for doubtful rent receivable 5,156 -

5,873 8,072

8. INVESTMENT MANAGEMENT AND ADMINISTRATION FEES

2018Shs‘000

2017Shs‘000

Fund management expenses 76,374 49,894

Custodian fees 23,928 21,154

Investment Transactions 818 517

Land banking 1,174 742

Property expenses (Note 9) 113,790 195,648

216,084 267,955



9. PROPERTY EXPENSES

2018Shs‘000

2017Shs‘000

CPF House 14,382 49,637

Pension towers 13,177 46,422

Metropark Building 10,636 26,592

Kenwood house 1,080 25,203

Freedom Height 44,820 14,280

Palli house 2,357 11,408

Lavington, Nairobi 8,010 6,970

Changamwe, Mombasa 3,740 6,326

Mann Apartments, Kilimani, Nairobi 5,175 3,352

Mohamed Kahero, Nakuru 980 2,494

Chaka 1,918 642

Eldoret 777 508

Ngei II, Nakuru 468 503

Karen, Nairobi - 381

Thika 1,193 313

Mombasa Car Park 204 304

Mtwapa, Mombasa 1,306 168

Busia 33 145

Ngei I, Nakuru 724 -

Konza 1,311 -

Kilifi 12 -

Kisimu 488 -

Kitengela 999 -

113,790 195,648



10. ADMINISTRATIVE EXPENSES

2018Shs‘000

2017Shs‘000

Administration fees* 855,888 770,483

Members education and outreach expenses 76,891 27,416

Trustees’ expenses 27,186 49,402

Debt collection fees 234,675 90,887

Professional fees 2,981 3,826

AGM expenses 17,269 11,486

Legal fees 6,696 11,607

Actuarial fees 2,473 6,820

Retirement Benefi ts Authority levy 5,000 5,000

Bank charges 4,256 4,011

Branch expenses 47,568 51,622

Audit fees 3,415 1,898

Depreciation 2,168 6,201

Other expenses 30,793 49,185

Branch rent expenses 10,231 7,395

Rent debt write off - 18,628

1,327,490 1,115,867

* Administration fees relates to the fees paid to the CPF Financial Services Limited for the administration services provided to the Scheme in the year at the rate of 1.7 % of the last Audited Gross Fund Value.

11. IMPAIRMENT

2018Shs‘000

2017Shs‘000

Impairment of doubtful contributions and penalties 3,089,309 1,711,014

Impairment of rent receivable - (42,004)

Impairment of deposit 12,619 64,780

3,101,928 1,733,790



12. FAIR VALUE GAIN (LOSS) ON REVALUATION OF INVESTMENTS

2018Shs‘000

2017Shs‘000

Fair value gain on government securities (Note 16) 317,448 315,549

Fair value loss on quoted investments (Note 25) (488,878) 462,760

Fair value loss on o� shore investments (7,367) -

Fair value loss on unquoted investment (Note 26) (139,251) (185 668)

Fair value gain on REITs (Note 17) 625 (2,375)

(317,423) 590,266

13 (a) CASH AND BANK BALANCES

2018Shs‘000

2017Shs‘000

Bank balances 247,465 212,970

(b) CASH AND CASH EQUIVALENTS

Cash and bank balances (Note 13 (a)) 247,465 212,970

Fixed deposits maturing within 90 days (Note 14) 933,520 849,881

1,180,985 1,062,851



14. SHORT TERM DEPOSITS

Description

Rate % Maturity

Date

Value as At

12/31/18Shs’000

Bank of Africa 8.75 02/01/2019 19,969

Cooperative Bank of Kenya 9 04/03/2019 39,317

Cooperative Bank of Kenya 9.25 12/03/2019 34,233







Diamond Trust Bank 9 29/04/2019 83,213

Equity Bank 8 07/01/2019 39,086

Equity Bank 9 18/02/2019 15,546

Equity Bank 9.25 19/03/2019 43,131

I&M Bank 10 21/01/2019 13,853

I&M Bank 9.5 29/04/2019 24,126

Kenya Commercial Bank 9 21/01/2019 20,197

Kenya Commercial Bank 9 21/01/2019 54,432

Kenya Commercial Bank 8.5 21/01/2019 60,168

NIC Bank 7 02/01/2019 3,743

NIC Bank 8.5 14/01/2019 18,217

NIC Bank 9 18/02/2019 60,592

NIC Bank 9.5 01/04/2019 1,801

NIC Bank 9.5 01/04/2019 10,008

Stanbic Bank 8 On call 45

Stanbic Bank 7 On call 1,016

Stanbic Bank 7.5 On call 2,011

Cooperative Bank of Kenya 8.5 On call 451

Cooperative Bank of Kenya 7 On call 1,722



Cooperative Bank of Kenya 8.5 On call 3,913



14. SHORT TERM DEPOSITS (Continued)

Description

Rate % Maturity

Date

Value as At

12/31/18Shs’000









Equity Bank 10 On call 553

Equity Bank 8 On call 1,172


Equity Bank 7.5 On call 9,877





Imperial Bank Kenya 0.06 On call 60,030

Kenya Commercial Bank 8 On call 6,045

Kenya Commercial Bank 8.5 On call 15,070

Kenya Commercial Bank 8 On call 40,994

NIC Bank 7 On call 1,514




999,382

Maturity analysis At 31 December 2018 2018

Shs‘000

Maturing within 90 days 999,382

Provision for Imperial and impairment of deposits (65,862)933,520





Description Maturity

Date Rate %

Value as At 12/31/17

Shs’000Equity Bank 1/29/2018 9.5 20,338

NIC Bank 1/29/2018 10 24,428

Diamond Trust Bank 1/29/2018 9.25 28,433

NIC Bank 1/29/2018 10 27,451

NIC Bank 1/15/2018 10 1,326

Kenya Commercial Bank 1/8/2018 10.5 8,595

Kenya Commercial Bank 1/15/2018 9 73,471

Cooperative Bank of Kenya 2/12/2018 9.75 1,318


NIC Bank 1/29/2018 10 1,423

NIC Bank 2/5/2018 10 13,192

NIC Bank 2/12/2018 10 304

Cooperative Bank of Kenya 2/12/2018 10 13,168

Equity Bank 1/8/2018 10 40,285



Equity Bank 1/8/2018 9.5 11,006

Equity Bank 1/8/2018 10 45,321





Equity Bank 1/8/2018 8.5 19,414



NIC Bank 4/2/2018 10.5 3,603

Equity Bank 4/2/2018 10.5 4,003







Description Maturity

Date Rate %

Value as At 12/31/17

Shs’000Cooperative Bank of Kenya 3/26/2018 10.5 20,063

Kenya Commercial Bank On call 7.5 614

Equity Bank On call 7.5 102

Kenya Commercial Bank On call 9.25 2,716

Equity Bank On call 8.5 45,722

Cooperative Bank of Kenya On call 8.5 17,429


Commercial Bank of Africa On call 9 2,123



Equity Bank On call 8 2,502




Equity Bank On call 8.5 500





Equity Bank On call 10 503


Cooperative Bank of Kenya On call 8 18,016



NIC Bank On call 8 8,032



849,881



15. TREASURY BILLS

2018Shs‘000

2017Shs‘000

- Within 3 months 262,661 191,314

- Within 4 to 12 months 1,080,619 620,658

1,343,280 811,972

The eff ective weighted interest rate on the above bonds was 11.9% (2017:12.56 %).

16. GOVERNMENT SECURITIES

At fair value 2018Shs‘000

2017Shs‘000

Cost at beginning of the reporting period 9,541,830 8,072,248

Additions 959,277 2,967,126

Proceeds from disposals (1,299,511) (1,872,736)

Fair value gain 317,448 315,549

Gain on disposal 1,983 59,643

9,521,027 9,541,830

The eff ective weighted interest rate on the above bonds was 12.20% (2017:12.56 %).

17. REAL ESTATE INVESTMENT TRUST (REIT)

At fair value 2018Shs‘000

2017Shs‘000

1 January 26,750 29,125

Additions - -

Fair value gain /(loss) 625 (2,375)

27,375 26,750

The total units held are 2,500,002 (2017: 2,500,002) which were acquired at a cost of Shs 10.7 per unit.

Market value for the quoted Stanlib REIT is determined by reference to Nairobi Securities Exchange prices prevailing at the end of each reporting date.


18. CORPORATE BONDS

Description

Maturity

Date

Interest

rate2018

2018

Shs’000

Interest rate

20172017

Shs’000British American Insurance Limited 06-Sep-27 13.00% - 13.00% 26,064

Commercial Bank of Africa 14-Dec-20 12.75% 115,562 12.75% 115,522

Centum Limited 08-Jun-20 13.00% 28,381 13.00% 37,375

Centum Limited 06-Jun-22 12.50% 27,032 12.50% 18,019

Chase Bank Limited 22-Jul-15 6.63% 30,136 6.63% -

Corporate Insurance Company 02-Oct-19 13.00% 46,175 13.00% 45,986

Consolidated Bank Limited 22-Jul-19 13.25% 52,922 13.25% 52,904

East African Brewaries Limited 19-Mar-18 12.57% 103,820 12.57% 76,605

Family Bank Limited 09-Apr-21 13.75% 9,285 13.75% 9,282

Housing Finance Corporation Ltd 14-Oct-19 13.00% 11,606 13.00% 11,602

Housing Finance Corporation Ltd 14-Oct-19 13.00% 5,856 13.00% 5,854

I & M Bank Limited 09-Dec-19 12.80% 50,368 12.80% 50,351

Kengen Limited 31-Oct-19 12.60% 62,362 12.60% 132,361

NIC Bank Limited 15-Jan-24 12.50% 7,996 12.50% 7,994

Shelter–Afrique 24-Sep-18 12.75% - 12.75% 6,865

UAP Holding 22-Jul-19 13.00% 18,275 - -

Provision for chase bank (36,786)

532,990 596,784

The eff ective weighted average interest rate was 12.32% (2017 – 12.56%).




19. RECEIVABLES AND ACCRUED INCOME

2018Shs‘000

2017Shs‘000

Contributions receivable from Sponsors (Note 20) 1,981,973 2,199,028

Rental receivables (net) (Note 21) 7,075 12,611

Prepayments 202,226 206,381

Deposits 15,963 12,455

Sundry receivables 10,653 11,352

Dividend receivable 11,868 1,947

Due from related parties 8,478 29,552

Withholding tax recoverable 528,354 383,120

Property Service Charge receivable 20,280 -

2,786,870 2,856,446

20. CONTRIBUTIONS RECEIVABLE FROM SPONSORS

2018Shs‘000

2017Shs‘000

Contributions receivable 19,384,829 16,495,308

Actuarial defi cit receivable 3,071,286 3,088,553

Total 22,456,115 19,583,861

Less: provision for impairment: (20,474,142) (17,384,833)

At end of the year 1,981,973 2,199,028

The movement in provision was as follows:

Opening balance on outstanding balance 17,384,833 15,673,819

Increase in provisions ( Note 11) 3,089,309 1,711,014

20,474,142 17,384,833

21. RENT RECEIVABLE (NET)

2018Shs‘000

2017Shs‘000

At beginning of the year 12,611 5,696

Rent income 294,239 371,776

Receipts (284,621) (388,239)

Impairment of doubtful debts (15,154) 42,004

Bad debt written off - (18,626)

At 31 December 7,075 12,611



22. INTEREST ON OUTSTANDING CONTRIBUTION

2018Shs‘000

2017Shs‘000

At beginning of the year - -

Interest income* (Note 3) 2,494,750 1,892,470

Receipts - -

Provision for bad and doubtful receivables (2,494,750) (1,892,470)

At end of the year - -

*Relate to interest on outstanding contribution charged on outstanding contributions as required by the Scheme regulations that were not recognized as income in the prior years. Interest is charged at a rate of 1.25% per annum on a compounded interest basis. The interest is calculated on a daily basis but accrued monthly in arrears and full provision has been made.

23. FURNITURE AND FITTINGS

Cost 2018Shs‘000

2017Shs‘000

1st January 53,957 53,627

Additions 227 330

54,184 53,957

DEPRECIATION

1st January 53,957 51,041

Charge for the year 114 2,916

54,071 53,957

Net Book Value 113

24. INTANGIBLE ASSETS

Cost 2018Shs‘000

2017Shs‘000

1st January 6,970 2,628

Additions 4,342

31st December 6,970 6,970

AMORTIZATION

1st January (4,916) (1,631)

Charge for the year (2,054) (3,285)

31st December (6,970) 4,916

Net Book Value - 2,054


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26. UNQUOTED INVESTMENTS

2018Shs‘000

2017Shs‘000

1 January 1,561,086 1,746,754

Fair value loss (139,251) (185,668)

1,421,835 1,561,086

The Trustees uses either the price of recent transactions where available; or book value multiples or earnings multiples of other comparable listed entities to estimate the fair value of the unquoted investments or to eval-uate impairment of these investments.

27. INVESTMENT PROPERTY

Investment property 2018Shs‘000

2017Shs‘000

At start of year 11,497,954 10,265,355

Additions 1,739,570 1,236,183

Disposal (368,000) -

Fair value loss (112,223) (3,584)

At end of year 12,757,301 11,497,954

The Scheme’s investment properties were revalued at 31 December 2018 by Laser Property Limited, inde-pendent professionally qualifi ed valuers. Valuations were based on current prices in an active market.

The following table analyses the non-fi nancial assets carried at fair value, by valuation method. The diff erent levels have been defi ned as follows:

● Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) ● Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).● Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

Level 1Shs’000

Level 2Shs’000

Level 3Shs’000

At 31 December 2018Investment property - 12,757,301 12,757,301

At 31 December 2017Investment property - 11,497,954 11,497,954

Valuation techniques used to derive level 2 fair values

Level 2 fair values of land and retail units have been derived using the sales comparison approach. Sales prices of comparable land and buildings in close proximity are adjusted for diff erences in key attributes such as prop-erty size. The most signifi cant input into this valuation approach is price per square foot.



27. INVESTMENT PROPERTY (Continued)The investment property is broken down as follows:


INVESTMENT PROPERTY AT FAIR VALUE

Fair Value

Jan-18 Shs'000

AdditionShs'000

DisposalShs'000

Change in Fair Value

Shs'000

Fair Value

Dec-18 Shs'000

L.R.209/2650- MetroPark 636,000 7,923 - (7,923) 636,000

L.R.209/2464-Kenwood House 368,000 - (368,000) - -

L.R.209/4866/7- CPF house 848,500 11,519 - 6,481 866,500

L.R.116/7/8-Palli house 236,000 5,502 - (56,502) 185,000

Msa plot XXV/116-MSA 45,500 - - 12,000 57,500

Msa plot XXV/117-MSA 45,500 - - 12,000 57,500

L.R.209/638/1-Pension Towers 1,140,000 8,230 - 51,770 1,200,000

Block 4/224 -Ngei Estate Phase I 167,500 - - 4,500 172,000

Block 4/237 -Ngei Estate Phase II 95,500 - - 3,500 99,000

Block 4/240-Ngei Estate Phase II 45,000 - - - 45,000




Block 2/104-Mohamed Kahero A 25,000 - - 6,500 31,500

Block 2/131-Mohamed Kahero A 68,000 - - 4,000 72,000

Block 2/131-Mohamed Kahero B 65,500 - - - 65,500

New Changamwe Estate 555,000 - - 40,000 595,000

LR Block9/29 Kisumu MUN. 385,000 - - 2,000 387,000

L.R NO 3734/1083/Nairobi 260,000 1,557 - (73,557) 188,000

Mainland Nort/Section III/406, Mtwapa 315,000 842 - (842) 315,000

Thika L.R 4953/2338/2339/2340 316,000 - - - 316,000

L.R NO. 6939/1:OLOLUA RIDGE 718,157 50,843 - (39,012) 729,988

Kajiado/Kaputie - North/28292 95,000 5,907 - (5,907) 95,000

Kajiado/Kitengela 5664 222,000 2,231 - (2,231) 222,000Freedom Heights Construction in Pr gressL.R.209/21548 1,479,508 838,958 - - 2,318,466

Freedom Heights Construction in Pro-gressL.R.209/21547 1,421,489 806,058 - - 2,227,547

Freedom Heights Construction in Pro-gressL.R.209/21549 115,000 - - - 115,000

Chaka Road, Nairobi 500,000 - - 15,000 515,000



28. PAYABLES AND ACCRUALS

2018Shs‘000

2017Shs‘000

Tenants security deposits 45,286 26,351

Accrued payments 17,725 117,014

RBA Levy payable 5,027 5,000

Other payables 336,638 309,497

Additional Voluntary Contribution (AVC) payable* 2,842,205 2,999,073

Deferred pension benefi ts - 23,521

Freedom Heights Property Sales Deposits 810,314 582,098

Due to related parties 106,658 73,685

VAT payable 375,708 339,549

4,539,561 4,475,788

*AVC payable relates to excess contributions and transfers from the sponsors that were previously managed in-house schemes and the interest payable thereon.

29. FUND BALANCE

2018Shs‘000

2017Shs‘000

NET ASSETS AT 1 JANUARY 26,542,193 23,904,232

Increase in net assets for the year 1,107,841 2,637,961

NET ASSETS AT 31 DECEMBER 27,650,034 26,542,193

27. INVESTMENT PROPERTY (Continued)The investment property is broken down as follows:

INVESTMENT PROPERTY AT FAIR VALUE

Fair Value

Jan-18 Shs'000

Addition Shs'000

DisposalShs'000

Change in Fair Value

Shs'000

Fair Value

Dec-18 Shs'000

Eldoret 610,000 - - - 610,000

Nakuru Property 279,000 - - 9,000 288,000

Kilimani, Nairobi 350,000 - - (100,000) 250,000

Mombasa Plot L.R 2562/294 19,000 - - 3,000 22,000

Mombasa Plot L.R 2562/294 11,000 - - 1,500 12,500

Mombasa Plot L.R 2562/298 6,000 - - 2,500 8,500

Total Investment Property Valuation 11,497,954 1,739,570 (368,000) (112,223) 12,757,301



30. FINANCIAL RISK MANAGEMENT

The Scheme generates revenues for the members by investing in various income generating activities which involve trading in the securities exchange, trading in government securities and off -shore investments. These activities expose the Scheme to a variety of fi nancial risks, including credit risk and the eff ects of changes in equity market prices, foreign currency exchange rates and interest rates. The Scheme’s overall risk management program focuses on the unpredictability of fi nancial markets and seeks to minimise poten-tial adverse eff ects on its fi nancial 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

The Scheme invests internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from investment in off shore investments.

The Scheme’s currency risk is low because the funds are held for a long term period and any currency losses are expected to be recouped through interest income received. The investment managers manage foreign ex-change risk by limiting off shore investments to strategic range of 11% of total portfolio.

(i) Foreign exchange risk

The scheme invested some funds off shore which 0.1% of total investments as result the scheme made some revaluation losses which has been recorded in the fi nancials accordingly.

(ii) Price risk

The Scheme is exposed to equity securities price risk because of investments in quoted shares which are clas-sifi ed as held for trading. To manage its price risk arising from investments in equity and debt securities, the Scheme diversifi es its portfolio. For equities, the Scheme has invested in companies in diff erent sectors of the economy. All quoted shares held by the Scheme are traded on the Nairobi Securities Exchange (NSE).

If the price of equity securities were to appreciate/depreciate by 5% it would have resulted in an increase or decrease in the net increase in net assets of Shs 128,722,151 (2017 – Shs 134,038,000).

(iii) Interest rate risk

The Scheme’s interest bearing assets are investments in treasury bonds and short term deposits. All of these instruments are at fi xed interest rates. The nature of fi nancial instruments held, mitigates interest risk expo-sure of the Scheme. Fluctuations in interest rates will have an insignifi cant eff ect on the Scheme.



30. FINANCIAL RISK MANAGEMENT (continued)

Credit risk

Credit risk arises from cash and cash equivalents, short term deposits, interest bearing investments, and re-ceivables. As part of the credit risk management system, the investment managers and the Trustees monitor and review information on signifi cant investments. The Trustees have approved larger portfolio investments with the Government of Kenya which has a low credit rating and also a low default record.

The credit risk on liquid funds and bank balances is limited because the counter parties are banks with high credit ratings assigned by the bank regulator. The amount that best represents the Scheme’s maximum expo-sure to credit risk as at 31 December 2018 is made up as follows:

31-Dec-18 Fully performingShs’

Past due but not impaired

Shs’

ImpairedShs’

TotalShs’

Treasury bonds 10,864,307 - - 10,864,307

Corporate bonds 569,778 - (36,788) 532,990

Cash and cash equivalents 1,186,817 - (5,832) 1,180,985

Receivables 22,456,115 - (20,474,142) 1,981,973

Other receivables 804,451 - - 804,45135,881,468 - (20,516,762) 15,364,706

Treasury bonds 9,541,830 - - 9,541,830

Corporate bonds 596,784 - - 596,784

Cash and cash equivalents 1,062,851 - - 1,062,851

Receivables 344,397 3,709,261 15,530,203 19,583,861

11,545,862 3,709,261 15,530,203 30,785,326

The debts that are impaired are fully provided for. The debts that are past due are not impaired and continue to be paid. The Scheme’s management is actively pursuing these debts. There are no collateral held against these assets. There is no concentration risk as these investments are diversifi ed.

Liquidity risk

The Scheme is required to make payments in respect of pension payments when members withdraw or retire from the Scheme, and is therefore exposed to the risk of diffi culty 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 Scheme’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 fl ows of the Scheme’s fi nancial liabilities.




Liquidity risk (continued)

20181-3 months

Shs’000

3-4 months

Shs’000

4-6 months

Shs’000 1 year

Shs’000

Total

Shs’000 Financial liabilityPayables ( 4,539,560) - - - (4,539,560)

Financial assets

Treasury bonds - 193,182 9,327,845 9,521,027

Treasury bills 262,661 490,905 418,960 170,754 1,343,280

Corporate bonds 532,990 - - - 532,990

Real estate investment trust 27,375 27,375

Quoted equity investment 2,574,441 - - - 2,574,441

Unquoted Investment 1,421,835 - - - 1,421,835

Private equity 10,746 - - - 10,746

Receivables 2,786,424 - - - 2,786,424

Cash and cash equivalents 1,180,985 - - - 1,180,985

8,797,457 490,905 612,142 9,498,599 19,399,103Net liquidity gap 4,257,897 490,905 612,142 9,498,599 14,859,5432017

Financial liabilityPayables (4,475,788) - - - (4,475,788)Financial assets Treasury bonds 120,459 207,276 295,259 8,918,836 9,541,830Treasury bills 191,314 352,990 267,668 811,972Corporate bonds 596,784 - - - 596,784Receivables 2,856,446 - - - 2,856,446Cash and cash equivalents 1,062,851 - - - 1,062,851

4,827,854 560,266 562,927 8,918,836 14,869,883Net liquidity gap 352,066 560,266 562,927 8,918,836 10,394,095





Fair value of fi nancial assets and liabilities

The table below shows an analysis of fi nancial instruments at fair value by level of the fair value hierarchy. The fi nancial 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 marketsfor 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); andiii) 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).

Level 1Shs’000

Level 2

Shs’000

Level 3

Shs’000

Total

Shs’000 31-Dec-18

Fair value through profi t or loss:

Equity investments 4,034,397 - - 4,034,397

Government Securities 1,343,280 1,343,280

Corporate bonds - 532,990 - 532,990

Investment property - 12,757,301 12,757,301

Off shore investments 32,632 - - 32,632

Government securities 9,521,027 - - 9,521,027Net liquidity gap 14,931,336 532,990 12,757,301 28,221,62731-Dec-17

Fair value through profi t or loss:Equity investments 3,053,910 - - 3,053,910REIT 26,750 - - 26,750Investment property - 11,497,954 - 11,497,954Government securities 9,541,830 - - 9,541,830Unquoted equity - 1,561,086 - 1,561,086

12,622,490 13,059,040 - 25,681,530





Unquoted equity under level 2 relates to investments in Consolidated Bank of Kenya Limited, Family Bank Limited and CPF Financial Services Limited which are not quoted in the Nairobi Securities Exchange (active market) but whose price can be readily sourced from an over the counter market available to the shareholders of these companies (except CPF fi nancial services Limited) and also the investment managers.

There were no transfers between levels 1, 2 and 3 in the year (2017: None).

31. MANAGEMENT OF MEMBERS’ FUNDS

The Scheme maintains an effi cient structure of members’ funds consistent with the Scheme’s risk profi le and the regulatory and market requirements of its operating environment.

The Scheme’s objectives when managing members’ funds are to safeguard the Scheme’s ability to continue as a going concern in order to fulfi ll its obligations of paying retirement benefi ts when they fall due.

The constitution of members’ funds managed by the Scheme is as shown on note 30.

32. RELATED PARTY TRANSACTIONS

2018Shs‘000

2017Shs‘000

Receivable from sponsors

Net receivable from CPF Financial Services Limited 6,281 28,497

Net receivable from LITES Ltd 2,196 2,196

Net receivable from Laser Insurance Broker Limited - 25,460

Payable to sponsors

Net payable to CPF Individual Pension Scheme 18,698 11,244

Net payable to Laptrust (Umbrella) Retirement Fund 83,629 62,441

Net Payable to Laser Property Services Limited 4,158 1,002

Net payable to Trust Fund 165 165

Net payable to Laser Insurance brokers 8 -

b) Trustees/ management remuneration

Allowances and other benefi ts 27,186

49,402



33. ACTUARIAL VALUATION

The Trust’s Deed requires that an actuarial valuation be carried out at least once every three years. An actu-arial valuation was last carried out as at 30 June 2016 by Alexander Forbes Financial Services (EA) Limited and an actuarial valuation report was issued in December 2016. Currently there is an on-going valuation and the fi nal report will be submitted to the board for guidance.The valuation as at 30th June 2016 was performed using the projected unit method. The actuaries estimated that the actuarial present value of past service liabilities amounted to Shs 28,877 million at 30 June 2016, and that the value of Scheme liabilities exceeded the assets by Shs 5,647 million at that date.

The fi nancial assumptions adopted for the valuation included the following:

Return on investments 9% Salary increases 5% Increases in pension 0%

34. FAIR VALUE

The Trustees consider that there is no material diff erence between the fair value and the carrying value of the Scheme’s fi nancial assets and liabilities where fair value details have not been presented.

35. CONTINGENT LIABILITY

The Trustees consider that there is a contingent liability arising from the ongoing development of Ololua ridge of Kshs 1.5billion which is payable when the project is complete.


Notes

Annual Report and Financial Statements 71Annual Report and Financial Statements 7171

Scheme Corporate Administrator Offi ces

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]

GARISSA BRANCH Immigration House,Ground FloorMob: 0720-433 354, 0735 763 293 Tel: +254 (020) 2046901-5Email: [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 BRANCHAmee Centre,1st Floor,Opposite Barclays Bank, 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]


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

CORPORATEADMINISTRATOR

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