Kenya’s pension fund assets trail African peers

Kenya’s pension fund assets remain low compared to its peers in Africa, a new index shows, limiting liquidity and investment options in the domestic market.

By ELIZABETH KIVUVA
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Summary

• The country’s pension assets position was ranked at 41 points out of 100 in the Absa Africa Financial Market Index 2020 for 23 countries, trailing other nations such as Namibia (92) Mauritius (90) South Africa (86) and Morocco (72).
• The ranking pillar measures local investor capacity based on the amount of pension fund assets available in the country relative to the population and market capitalisation.

The country’s pension assets position was ranked at 41 points out of 100 in the Absa Africa Financial Market Index 2020 for 23 countries, trailing other nations such as Namibia (92) Mauritius (90) South Africa (86) and Morocco (72).

The ranking pillar measures local investor capacity based on the amount of pension fund assets available in the country relative to the population and market capitalisation.

“Countries tend to perform poorly in this pillar, especially if their pension systems are not yet well established,” the report stated.

This indicates that Kenya is still yet to measure up against its peers in holding enough long-term pension assets to propel capital market development.

In Kenya, one respondent said pension investment practices were improving, but conflicts between pension fund trustees and external managers tend to hamper longer-term approaches to investment.

While this indicator gauges the extent to which pension funds can propel capital market development, low market liquidity can prevent pension funds from investing in local assets and encourage them to adopt buy-and-hold strategies or invest internationally.

Pension funds in Kenya had assets under management at Sh1.3 trillion as at December 2019, representing 13.4 percent of the GDP. The funds only cover 20 percent of the working population.

The Central Bank of Kenya (CBK) data shows pension funds account for 28.91 percent of government domestic debt, which stood at Sh3.40 trillion as at August.

Kenya also holds pension assets per capita at Sh27,331 compared to Namibia that topped the category with $4,582 (Sh463,698) at the end of 2019.

Mauritius, South Africa, Seychelles and Eswatini have pension assets per capita exceeding $1,000, while Morocco is just below at $938.

The report stated that the growth in pension funds and other institutional investors could play a significant role in spurring market activity and increasing capital and liquidity.