Retirement benefits will no longer be inflated by the market's fluctuating gaze on bonds, as the Retirement Benefits Authority (RBA) has announced a significant change in how net interest is calculated.

Effective December 21, 2023, unrealized gains and losses arising from changes in the value of debt instruments, particularly bonds held by a scheme, will be excluded from the net return declared and credited to members at the end of the financial year.

This means that while the overall value of the scheme's fund might fluctuate because of market movements, these fluctuations will no longer directly impact the immediate returns credited to members.

Previously, even if the bond's value hadn't been realized through sale, any theoretical increase or decrease in its market price would be factored into the net return.

The RBA's decision aims to inject stability and predictability into retirement benefits, shielding members from the short-term volatility of the bond market.

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While the immediate impact on individual returns might be negligible, the long-term implications are significant.

By focusing on realized gains and losses, the RBA is ensuring that declared returns reflect the actual performance of the scheme's investments, rather than speculative fluctuations in bond prices.

This provides a clearer picture of the scheme's financial health and allows members to plan their retirement income with greater certainty.

The exclusion of unrealized gains and losses applies to all four major types of retirement benefit schemes in Kenya:

(i) Retirement Benefits (Occupational Retirement Benefits Schemes) Regulations, 2000.

(ii) Retirement Benefits (Individual Retirement Benefits Schemes) Regulations, 2000.

(iii) Retirement Benefits (Umbrella Retirement Benefits Schemes) Regulations, 2017.

(iv) Retirement Benefits (Income Drawdown Funds) Regulations, 2023.

This move brings the regulations in line with international best practices and reflects the RBA's commitment to safeguarding the interests of members.

It is worth noting that two critical modifications have been introduced under the new amendment.

(i) Valuation of Debt Instruments: The value of debt instruments held to maturity must now be reported at amortized cost.

(ii) Fair Value Method: The fair value method is now mandated for determining the value of debt instruments available for sale, as well as equities.

These changes will impact the upcoming investment reports and financial statements as of December 31, 2023, requiring strict compliance with the newly introduced amendments.

Industry players are urged to familiarize themselves with these changes to ensure seamless adaptation to the revised regulatory landscape.