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Workers lose big as pension schemes hit

By Moses Michira | November 24th 2015 at 00:00:00 GMT +0300

It’s the wrong time to take retirement given your lifetime savings held in pension schemes have lost considerable value, according to latest actuarial report.

The report compiled by Alexander Forbes Consulting Actuaries shows workers lost nearly Sh15 billion in retirement savings in three months to September, on a sustained bear run at the stock market and depressed bond valuations.

The total value of asset under the management of 380 retirement schemes shrank to Sh510 billion as the effect of high interest rates hit home, according to the report.

The findings from the study were presented Monday and now show the savers lost the most money in investments held in company stocks whose collective value fell by more than a tenth in the quarter beginning July 1.

“The range of returns decreased against the previous period and does support the need for further analysis of the impact of asset allocation, mandates and asset management styles and approaches,” Managing Director Sundeep Raichura said.

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A drop in interest rates could help in raising the valuation of bonds and offer a boost to the stock market. High interest rates since June have had the effect of slashing the value of all debt securities – which are the most popular investment asset among fund managers in Kenya.

The fall in bond valuations was anticipated when it became clear that interest rates would only rise, as part of the Central Bank of Kenya’s response to a deprecating shilling. Investment banker Jimnah Mbaru said in a recent commentary that his financial advisory firm, Dyer and Blair, had told investors to get out of bonds (investments) in June this year.

“Those who did not heed our advice are crying now,” explained Mbaru, adding “The best investment at this moment in Kenya looks like cash/ deposits or short-term bonds. Think about it.”

In the 12 months to September, returns from bonds were 4.7 per cent compared to 10.6 per cent in the June 2014 to June 2015 period. Bonds issued by the Government or corporations offer a predictable revenue stream, paying interest to investors every six months. It is that stability and low risk exposure that fund managers seek in investing in bonds, with 68 per cent of all retirement savings being in invested in the debt instruments.

Stock prices are also exposed during high interest rate periods since investors often shift their funds to short-term securities, such as the 91-day Treasury Bills or bank deposits, which offer superior returns.

By selling stocks to invest in such debt instruments, supply of company stocks for sale outstrips demands leading to a fall in share prices. The bear run at the stock market meant that returns from the Nairobi Securities Exchange posted a loss of 11.4 per cent in the year to September, against a gain of 8.3 per cent in the year to June.

Investments outside the country reported a less lucrative performance of 10.5 per cent as at September 2015 compared to 14.1 per cent as at June 2015.

“The position is similar on a weighted average basis for all schemes with all asset classes posting depressed performances as at September 2015 when compared to performance as at June 2015,” Raichura said of all investment classes.

pension schemes retirement schemes Nairobi Securities Exchange
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