245 pension fund schemes exceed legal idle cash limit

In

FILE | NATION The Revenue Benefits Authority chief executive, Mr Edward Odundo, explains to a prospective pension scheme member aspects of Mbao Pension Plan during its launch on June 28, 2011. 

By GRIFFINS OMWENGA 

Summary

• Research and development manager at RBA Nzomo Mutuku said that most of the schemes held a lot of cash in unpaid interest or dividend payments or received a lot of interest from government securities that was still lying idle as at December 2012.

About 245 investment schemes charged with managing pension funds in the country broke the law by holding more cash than is legally required.

The Retirement Benefits Authority (RBA) has said various fund managers exceeded the legal idle cash limit which should not be more than five per cent.

“There were increased transient breaches in the cash category and were as a result of cash inflows at the end of the period,” said RBA in a review of pension scheme operations for the period June to December 2012.

Coop Trust and Old Mutual were the managers with the most schemes in breach and, together, they accounted for 56 per cent of all breaches.

Research and development manager at RBA Nzomo Mutuku said that most of the schemes held a lot of cash in unpaid interest or dividend payments or received a lot of interest from government securities that was still lying idle as at December 2012.

“Though it goes against the investment guidelines, the investment schemes are not allowed to have more than 5 per cent of their total wealth in cash but that sometimes happens when a financial year is closing as government and other entities pay their obligations resulting in excessive idle cash,” said Mr Mutuku.

The total pension industry assets grew by 10.3 per cent in the second half of 2012 to stand at Sh548.8 billion. It grew from Sh117.4 billion in 2002.

The amount was composed of Sh436 billion held by fund managers, Sh82.1 billion held by the National Social Security Fund (NSSF) and an additional Sh30 billion of property investments held by schemes but not under control of the fund managers.

“Part of the increase was as a result of the transfer of previously self-managed NSSF assets to six of the fund managers,” said the RBA.

The six are Old Mutual, Pinebridge, Coop Trust, ICEA, Genesis and CFC Stanbic.

ICEA asset management was the best performing fund manager in 2012 with a 31.2 per cent return, which saw its assets rise to Sh34.8 billion from Sh23 billion in December.

Other fund managers who disclosed their average return include Coop Trust 25.8 per cent, African Alliance 22.7 per cent, Madison 18.2 per cent and Dry Associates 15.1 per cent.

“The growth was driven by the good performance of the Nairobi Securities Exchange with the NSE 20 share index closing the year up 29.0 per cent.

In addition, schemes enjoyed increased valuations on their bond holdings as interest rates continued to decline,” said RBA.

Government securities constituted the largest share of industry assets with 35 per cent of total assets, followed by quoted equities at 24 per cent. The industry recorded double digit growth in most asset categories with the only decline being seen in the unquoted equity category.

Retirement benefit assets held by the 16 registered fund managers rose sharply by 21.6 per cent from Sh354.6 billion in June 2012 to Sh436.7 billion in December 2012. The rest are managed by unregistered schemes.

According to RBA, the Individual Retirement Benefits schemes sub-sector, though relatively new, has been one of the fastest growing components of the retirement benefits industry.

The individual retirement benefits schemes membership has grown tremendously from 25,289 members in June 2010 to 88,509 members in December 2012