Kenya's retirement benefits eroded by coronavirus

The government had identified pension funds as a potential financing alternative for projects, and wanted schemes to pool funds to be directed towards manufacturing, food security, universal health coverage and affordable housing. FILE PHOTO | NMG 

In Summary

• In an industry with 36 fund managers and issuers, five companies command 70 per cent of total assets under management.
• Sanlam Investments East Africa Company leads in terms of assets under management at $2.1 billion, which translates to 19.8 per cent of the total assets.
• About 17.5 per cent of retirees’ money was invested in quoted securities at the Nairobi Securities Exchange as at December 2019. This amounted to $2.1 billion, up from $1.8 billion in 2018

By NJIRAINI MUCHIRA
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Pension managers in Kenya project depressed growth of retirees’ funds due to the coronavirus pandemic that has negatively impacted the financial markets. 

About 17.5 per cent of retirees’ money was invested in quoted securities at the Nairobi Securities Exchange as at December 2019. This amounted to $2.1 billion, up from $1.8 billion in 2018.

In its 2019 industry report, the Retirement Benefits Authority (RBA) said: “The growth in the retirement benefits sector is projected to drop in the first half of 2020 given the effects of Covid-19, which has in the shortest time negatively impacted the financial markets and is postulated to significantly affect the global economy.”

Last week Kenya’s stock market plunged to a 17-year low with the NSE 20 Share Index nose-diving to 1,958.5 points, down from 2,666.9 points in January.

The report shows that efforts to encourage pension and fund managers to invest in new asset classes are not bearing fruit as most schemes continue to prefer traditional asset classes.

The lack of risk appetite by scheme managers throws into disarray plans by the Kenyan government to tap into pension funds to finance infrastructure projects.

The government had identified pension funds as a potential financing alternative for projects, and wanted schemes to pool funds to be directed towards manufacturing, food security, universal health coverage and affordable housing.

The RBA report showed that pension managers prefer to invest in safe havens like government securities, immovable property and quoted equities, while growth in private equity and real estate investment trusts remains muted.

The report shows that assets under management in Kenya increased by 11.2 per cent to $12 billion, from $10.8 billion in 2018. RBA attributed the growth in assets to the relative stability of the stock market during the past year.

The report indicates that pension schemes continued to invest heavily in government securities, with the asset class recording 42 per cent of the total assets under management, up from 39.4 per cent in 2018.

It was followed by immovable property, which accounted for 18.4 per cent, quoted equities at 17.5 per cent and guaranteed funds at 15.5 per cent.

The report shows that investment in alternative assets by schemes has gained traction with private equity and venture capital increased by 12 per cent from $8 million in 2018 to $9 million in 2019, accounting for 0.07 per cent of the total assets.

“The asset diversification remained almost similar to the previous periods with most of the asset classes recording minimal increases/decreases,” stated the report.