Returns on pension investments drop
By Winsley Masese | March 2nd 2015
Returns from investment in the pension schemes declined during the fourth quarter of last year, compared to the third quarter of the same period under review.
A survey released last week by Actuarial Services East Africa, indicated that returns from investment in the sector recorded an average return of 1.3 per cent compared to an average of 5.8 per cent of the third quarter.
The Pension Schemes Investment Performance Survey 2014 analysed schemes with a total fund size of about Sh105 billion. However, the survey which relies on data provided by the fund managers of the participating schemes did not provide reasons for the decline.
Despite their low returns, pension schemes are a critical component in economic growth of the economy through provision a key source of funding for mega infrastructural projects. Employer-based pension schemes currently manage close to Sh500 billion, compared to the National Social Security Fund’s Sh136 billion. According to the report, fixed asset was the best performing asset with an average return of 1.78 per cent. This was though a slump from the 3.9 per cent recorded in the third quarter of the same year.
The survey seeks to provide data to enable Trustees and Fund Managers to compare the returns and performances of their respective schemes with other schemes.
“From the report, the Trustees and Fund Managers will be able to identify which asset categories performed better and compare the results of their scheme’s asset categories with those of other schemes,” it stated.
The survey compares the overall returns plus the returns in different asset categories with their respective benchmarks and the overall Kenyan inflation. The report indicates that mega schemes of participating firms control about 71 per cent of the market share with each scheme investing over Sh2 billion.
Fixed Income was the best performing asset category with an average return of 1.78 which was though lower than the 3.91 average return registered in the third quarter of 2014. The fourth quarter’s equity average return of -2.68 was a significant drop from the third quarter’s Equities average return of 10.10.
Offshore investment reported an average return of 1.71, up from -0.01 in the third quarter. There are about 1,300 pension schemes in the country controlling in excess Sh680 billion. About 30 of these are individual retirement benefit schemes registered by the Retirement Benefits Authority (RBA).
Recently, RBA Chief Executive Officer Edward Odundo said the regulator is targeting to grow the pension industry coverage to 20 per cent in the next five years.
The pension funds’ regulator also intends to increase assets from the current Sh696.68 billion to reach Sh1.02 trillion by June 2019. “This will be possible through targeted awareness programs and products designed to reach out to segmented groups. The authority will also pursue automatic enrollment,” said Odundo.
He said RBA will create a facilitative legal framework to encourage product diversification and improve returns on savings and review the National Pension Policy to encourage sector growth.
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