Size does matter when choosing pension scheme

 

Ministry of Finance investment secretary Esther Koimett (centre) with Consolidated Bank chairperson Eunice Kagane, and CEO David Wachira when the bank unveiled its corporate bond trading at the Nairobi Securities Exchange last August. Photo/Diana Ngila 

By MOSES MICHIRA
Nairobi,Kenya:A survey done by Alexander Forbes has shown that size matters when choosing a retirement scheme to join.


The Nairobi-based actuarial consultancy firm compared investment returns from different pension schemes, with the bigger ones outperforming the smaller ones.


What this means for workers is that a bigger retirement scheme with assets in excess of Sh500 million is more likely to provide a better return, which goes a long way towards guaranteeing a more financially secure retirement.


Details of the findings show that retirement schemes classified as  large reported a 30.2 per cent return in the 12-month period to March 31 this year, compared to 29.2 per cent reported by small schemes (with an asset base of below Sh250 million), and 28.2 per cent from medium-sized schemes.


Bigger schemes enjoy economies of scale — they are able to spread costs across a wider membership base — allowing them to give members a bigger return.


The survey also showed that investing in the stock market was the  most lucrative asset class, earning retirement schemes an average return of 70.3 per cent, compared to 15.8 per cent earned from investing in fixed inco me securities.


Last year, retirement schemes earned 52.1 per cent from the stock market in value appreciation.
Equity markets


“The increase (in returns from stocks) clearly demonstrates the buoyancy in the equity markets. The decrease in fixed income allocation is attributable to the rise in interest rates during the quarter and the bullish performance of the equity market which pulled in investors,” said Sundeep Raichura, the managing director of the consultancy firm in the report.


Mr Raichura said that the survey was aimed at helping retirement schemes rate their performance against their peers.


Another pension sector survey by ActServ released last week showed that the sustained rally in stock market has helped raise the total value retirement funds invested in equities by an average of 7.9 per cent in the first three months of the year.