Pension funds’ returns rebound on equities gain

The Nairobi Securities Exchange. Earnings from the stock market have lifted returns from pensions. FILE PHOTO | NMG 

By CONSTANT MUNDA
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Summary

• Weighted return on savings by retirees more than tripled to 17 percent last year compared with five percent in 2018.
• Actserv data indicate returns from offshore assets shot up to 25.7 percent in 2019 from 5.8 percent a year earlier, while fixed-income assets returned 12.8 percent compared with 13.8 percent in 2018.
• NSE's All-Share Index (NASI), which tracks the market value of shares of all listed firms, gained 18.5 percent to close the year at 166.41 points.

Returns on pension funds rebounded in 2019, largely lifted by earnings from the stock market and cash invested in foreign countries, outperforming overall inflation.

An analysis on the industry performance by Actuarial Services East Africa (Actserv), based on feedback from 423 schemes, shows weighted return on savings by retirees more than tripled to 17 percent last year compared with five percent in 2018.

“Equities and offshore asset class both recorded improved performance,” Actserv says in the latest quarterly report.

An upswing on the Nairobi Securities Exchange (NSE) helped pension schemes generate a 32.5 percent return on cash they injected in shares trading on the bourse in the year period through December 2019, a surge from 5.8 percent a year earlier.

Actserv data indicate returns from offshore assets shot up to 25.7 percent in 2019 from 5.8 percent a year earlier, while fixed-income assets returned 12.8 percent compared with 13.8 percent in 2018.

NSE's All-Share Index (NASI), which tracks the market value of shares of all listed firms, gained 18.5 percent to close the year at 166.41 points.

But deep-pocketed investors such as pension funds gained bigger returns on the back of a rally on blue-chip counters, largely banking stocks whose valuations surged ahead of scrapping of legal caps on interest rates last November.

“The one-year equity returns have been almost at par with the benchmark returns. The trend has however shifted downwards since Q1 2018 recovering from Q1 2019,” Actserv says in the report. Overall inflation during the year stood at 5.8 percent, an indication retirees made a fat gain in the real value of their investments.

This is unlike in 2018 when overall inflation was 5.7 percent against five percent weighted return, meaning negative real value on investments.

The bulk of savings by retirees was invested in fixed-income assets despite being slashed modestly to 59.71 percent from 63.11 percent in 2018.

The funds, nonetheless, raised the allocation to equities trading on a recovering stock market to 31.73 percent from 22.63 percent, data indicates.