Pension schemes post good returns

PHOTO | FILE Retirement Benefits Authority chief executive Edward Odundo.  NATION MEDIA GROUP

By JOHN NJIRU jnjiru@ke.nationmedia.com
Posted  Monday, November 19  2012 at  22:00

In Summary

• A recent study by an actuarial firm, Alexander Forbes, shows that investments made by various schemes in the country earned an average of 25.3 per cent for the 12 months ending September, compared to the past period which made an average loss of 11.9 per cent
• Economic volatility was witnessed last year after the country’s inflation hit a record 19.7 per cent. This in turn cut the value of the various investment portfolios at the Nairobi Securities Exchange (NSE)
• Fears are rife that the proposed NSSF Transition Bill, 2012 may reverse the healthy investments NSE is receiving from the over 1,000 private schemes in the country

Favourable returns from the bourse pushed overall performance by pension schemes to a positive note over the past one year compared to the previous period, according to a survey.

A recent study by an actuarial firm, Alexander Forbes, shows that investments made by various schemes in the country earned an average of 25.3 per cent for the 12 months ending September, compared to the past period which made an average loss of 11.9 per cent.

“Last year was different, where the market was adversely affected by the rise in inflation which kept the bond prices rising. This in turn pushed bond values into negatives, but the current performance at the securities exchange explains the overall high positive performance,” said Shera Noorbhai, an actuary at Alexander Forbes.

Economic volatility was witnessed last year after the country’s inflation hit a record 19.7 per cent. This in turn cut the value of the various investment portfolios at the Nairobi Securities Exchange (NSE).

Kenyan stocks have risen by 8.9 per cent this year, a major recovery from a 33 per cent drop registered last year due to investor confidence as a result of the stabilising Kenyan shilling against the dollar, lower yields in the debt market, and falling of the country’s inflation, which is currently at 4.9 per cent.

The study titled Alexander Forbes Consulting Actuaries Schemes Survey, shows that this year’s performance improved the average annual returns made by schemes in the past three years.

The figures show that performance for the past three years as at September 30 stood at 14.6 per cent, which is higher compared to the subsequent three-year period of 7.2 per cent that was pegged last year.

Out of 140 participating schemes, 134 qualified for inclusion in the survey. Schemes were discounted on the basis of being either insurer deposit administration guaranteed schemes or for having incomplete performance periods or returns.

Invested assets of participating schemes totalled Sh174.9 billion, which was a 35.7 per cent improvement compared to Sh128.8 billion recorded by the end of September last year.

This places the country’s bourse as the most attractive option for pension funds managers, according to the survey.

But fears are rife that the proposed NSSF Transition Bill, 2012 may reverse the healthy investments NSE is receiving from the over 1,000 private schemes in the country.

The Bill seeks to change the social security scheme from a provident fund to a pension scheme, where all employees in the formal sector will be forced to part with 12 per cent as contributions to the fund.

Market experts believe this will have a direct impact on operating occupational schemes, hence affecting trading at the bourse.

“We have no problems from NSSF converting from a provident fund to a pension scheme. Just that the opt-out should not be done by the same person (the NSSF), otherwise it won’t work out,” said Retirement Benefits Scheme chief executive officer Edward Odundo.