Assets held by workers’ retirement schemes have crossed the half-trillion shillings mark, reflecting growth in pensioners’ nest egg which got a boost from last year’s stock market rebound.
Latest data from the Retirement Benefits Authority (RBA) shows the industry’s assets increased by 20.7 per cent in the first six months of 2012, hitting Sh522.6 billion as at end of June.
“The amount was composed of Sh381.6 billion that was held by the 16 registered fund managers, Sh110.9 billion held by National Social Security Fund (NSSF) and an additional Sh30.0 billion of property investments held by schemes but not under control of fund managers,” said Edward Odundo, CEO of the regulatory body.
In the six months between January and June, the portfolio of pension schemes at the NSE grew by 38 per cent to Sh128.3 billion from Sh93 billion in December. The equities market grew by an average 28.95 per cent last year.
Government securities were the lead investment option for the schemes with Sh184.1 billion invested in Treasury bills and bonds.
Government securities are risk-free investments for the retirement schemes with a predictable rate of return while the equities market ordinarily offer a higher rate of return but are a more risky option.
“The growth is a result of returns on investment and generic growth from new entrants or higher salaries,” said James Oyugi, the general manager at Metropol Life and chairman pensions committee of the Association of Kenya Insurers (AKI).
Pension scheme contributions are based on a percentage of workers’ salaries.
The growth in assets is good news to pensioners as it is an indication of the rate at which their contribution is compounded during the year to calculate their final retirement package.
“That growth means more income in retirement for the pensioner as the kitty grows,” said Mr Oyugi.
An industry report by Actuarial Services East Africa released earlier in the year showed that savers earned an average rate of return of 28.39 per cent in 2012, moving them firmly in the positive returns territory after high inflation left them in the negative in 2011.
Real estate which has been experiencing a consistent rally over the past decade has seen the sum invested in it continue to grow reaching Sh94.8 billion in June, which constituted 18.1 per cent of the total portfolio.
The retirement schemes managers’ risk appetite went up as the guaranteed fund category was the only asset category to experience a decline, falling to Sh45.9 billion from 48 billion in December 2011.
Other asset options for retirement fund managers are fixed income securities whose portfolio stood at Sh23.4 billion in June, offshore investments of Sh6.9 billion and unquoted equities of Sh3.9 billion.
The pension assets were expected to grow faster in the second half of last year driven by capital gains from government securities as a result of the decline in interest rates, which have an inverse relationship with valuation of Treasury bills and bonds.
RBA is working on proposed regulatory changes in recognition of investment risks faced by the pension administrators.
One of the most radical proposals by a consultant hired by World Bank and whose report was submitted to the regulator recommends that the level of exposure pension funds can have in ordinary and preference shares be slashed from the current 70 per cent to between 20 per cent and 40 per cent of total investments as it is in Chile and Nigeria.