EA fund managers in big investment deals to stem pension crisis

Photo/File EA pension schemes threatened by a rising numbers of retirees and falling returns on investments. 

By JOINT REPORT The East African

Posted  Saturday, March 24  2012 at  12:33

Workers in East Africa can expect higher retirement earnings in coming years, as regional public pension managers roll out new ways to raise funds, diversify their income streams and streamline their operations.

However, data shows pension managers risk falling behind demand for pension payments in the wake of a rising number of retirees and falling returns on investments.

The public pension managers in Kenya, Uganda, Tanzania and Rwanda have lined up several mega investments, which could see the agencies become the single biggest investors in real estate and stock markets.

This is driven by the realisation that the region faces extreme levels of old age poverty in the next 20 years as the number of people aged 60 and above doubles with no corresponding increase in pension coverage.

This, together with faltering youth employment and shrinking formal sector jobs, presents a recipe for social upheaval as the elderly look up to a helpless younger generation for support.

Last week, Rwanda’s National Social Security Board (RSSB) said it would embark on the construction of a modern housing estate in Kigali later this year that is expected to strengthen the pension manager’s financial muscle.

In Kenya, the National Social Security Fund plans to transform itself into a pension fund, a shift that will see higher income earners contribute more for their retirement plans.

Data from the United Nations Department of Economic and Social Affairs, for example, show that in the next 20 years, the number of Kenyans aged 60 and above will rise from 1.8 million currently to nearly 4 million, worsening the pension crisis.

The trend is expected to be reflected in other EAC countries.

In Tanzania, formal social security institutions cover about six per cent of the population.

In Uganda, this is estimated at seven per cent. Kenya fares slightly better at 15 per cent.

In Rwanda, over 90 per cent of the population is not covered as the existing schemes cover only those in formal employment.

By the end of 2009, the total number of active members in the country’s public fund was about 300,000.

Depressed activity in stock markets — where the funds have invested a big chunk of their money — across the region has thinned out workers’ contributions, forcing the agencies to seek new investment schemes.

Kenya’s Retirement Benefits Authority latest industry figures show all asset categories, where fund managers had invested, exhibited a positive growth, except quoted equities, fixed income and cash, which declined by 5.5 per cent, 7.6 per cent and 26 per cent respectively over the first six months to June 2011.