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Pensions to lose Sh2b on pandemic

By Awal Mohamed | December 4th 2020


The pensions industry is expected to lose close to Sh2 billion in contributions as coronavirus continues to hurt the economy.

This is according to a report released yesterday by Central Bank of Kenya (CBK), which comprises data from all State regulators in the financial sector.

“Pensions industry is projected to lose about Sh1.78 billion in contributions, eroding pension assets considering the foregone investment income realisable from the contributions,” read the Kenya Financial Stability Report for 2020.

The report comes a few months after an industry analysis by fund administrator Zamara showed that retirement schemes recovered in the second quarter of 2020 compared to a negative position seen in a similar quarter of 2019.

The recovery was attributed to good performance from equities and offshore investments.

When the virus was reported in Kenya in March, suspension of pension contributions was among the first cost-cutting measures that employers took to trim their payroll expenses.

At a low penetration of 20 per cent in both the formal and informal sectors, Kenya’s pension industry is set to dip further with gains in membership rolled back.

The CBK report shows that the bulk of employers had applied to be exempted from paying pension contributions for their employees.

Data from the Retirement Benefits Authority (RBA) shows that the suspensions applied by firms vary, with some stretching up to nine months.

“A total of 83 employers participating in 43 retirement benefits schemes had applied for suspension of contributions owing to the effects of the pandemic,” the report reads.

The expected decline puts a stain on a sector that had posted positive growth in the last two years. The industry recorded a strong growth of 11.3 per cent in total assets in 2019 compared to 2018.

Additionally, the industry has been relatively stable with the overall risk score at 3.09 in 2019 but below the desired score of 2.88.

However, experts fear that the risk score will be worsened by the Covid-19 pandemic, considering that about 94 per cent of pension assets are held in just four asset classes.

A decline in equity and bond prices is further expected to curtail the growth of the pensions, especially for schemes that invest a large proportion of contribution in the stock market.

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