Bullish stock market lifts workers’ pension savings

Traders at the Nairobi Securities Exchange. Funds invested in equities earned an average return of 38 per cent. File  Nation Media Group

By David Mugwe

In Summary

• Last week, the Central Bank of Kenya lowered the Central Bank Rate to 11 per cent from 13 per cent, the third consecutive cut this year from a high of 18 per cent in the first six months of this yearinShare

Workers earned an average return of 25.3 per cent on their retirement savings over the past 12 months to the end of September, a survey by Alexander Forbes has shown. The growth in returns was mostly driven by the upturn of the equities market.

Funds invested in equities earned an average return of 38 per cent, fixed income savings returned 21.9 per cent, while offshore investments grew by 0.6 per cent.

The performance is a turnaround compared to the end of September 2011, when pension schemes posted an average return of -11.4 per cent at a time when most share prices were on a downward trend.

“Over the last four quarters, we have noted a steady increase in the one-year return performance from a low of negative 9.9 per cent as at December 2011 to a ‘high’ of 25.3 per cent as at September 2012,” said the financial services firm in the survey that was released on Monday.

The net returns earned by savers are, however, likely to be much lower after subtracting administration fees charged by pension fund managers.

The fees vary from scheme to scheme.

Alexander Forbes says the one-year returns between September last year and March 2012 were negative and significantly lower than the one-year performance as at September 30 this year, but this had changed as at the end of June through to the end of the third quarter.

The financial services firm said that it surveyed 140 schemes, of which 134 have a total of Sh175 billion under management qualified for inclusion in the survey.

According to data from the Nairobi Securities Exchange, between January and the end of September 28 the NSE 20 Share Index closed at 3,972.03 points having gone up by 23.93 per cent or 767.01 points.

The benchmark index closed at 3,205.02 points in December last year.

Alexander Forbes said that the range of returns reduced while the median went up, indicating that share price gains had a similar effect on most pension schemes across the board.

All the schemes included in the survey had an average of 25.7 per cent of their assets invested in equities, 67.8 per cent invested in fixed income instruments, 4.5 per cent invested in property, and two per cent invested in offshore investments.

Many listed firms have reported better than expected results, defying the high interest rate regime and inflation that affected other companies last year and part of this year.

Last week, the Central Bank of Kenya lowered the Central Bank Rate to 11 per cent from 13 per cent, the third consecutive cut this year from a high of 18 per cent in the first six months of this year.

Foreign and local investors have continued to bid up share prices while companies which have done well have continued to pay out dividends, pushing up returns for investors who include pension funds.