Stock market growth boosts pension funds

Retirement scheme managers have earned average returns of 7.6 per cent in the past three months buoyed by high returns from the stock market, which has been trending upwards through the first half of the year.

The performance is reflected in a new report published by Actuarial Services East Africa, a retirement benefits administrator which surveyed a total of 88 schemes that invest mainly in fixed income, equity, offshore, property and cash asset classes.

Share price gains gave the retirement schemes a 12.6 per cent return between April and June this year up from 10.7 per cent between January and March, making it the best performing asset class, followed by the fixed income asset class which gave a return of 6.4 per cent up from 6.1 per cent over the same time period.

Actuarial Services East Africa said that offshore was the worst performing asset category with returns of negative 0.9 per cent, much worse than the previous quarter’s return of 7.8 per cent.

“For the quarter ending June 30, the overall weighted average return was 7.6 per cent compared to the previous quarter’s returns of seven per cent,” notes the Actuarial Services report.

The survey shows that between April and June this year, pension schemes invested 66.8 per cent of their funds in fixed income compared to 66.4 per cent between January and March while the equity portfolio registered a marginal decrease to 27.1 per cent from 28.1 per cent.

Investments in the offshore asset classes remained at 1.9 per cent, same as in the previous quarter, approximately 2.3 per cent was invested in cash and cash equivalents, up from 1.4 per cent in the previous quarter while 1.9 per cent of the aggregate funds were invested in property according to Actuarial Services East Africa.

The second quarter’s performance points to better returns trickling down to pensioners.

Nelson Wawire, a lecturer at Kenyatta University’s macroeconomics department however said election jitters may however affect performance of the stock market.

“This is something positive, pensioners could have a little more purchasing power,” said Dr Wawire.

The Nairobi Securities Exchange (NSE) indices have been rising since the beginning of this year while the general cost of living and interest rates have been falling.

The inflation rate dropped to 7.74 per cent last month, from a peak of 19.72 per cent in November last year.

The Central Bank of Kenya lowered its benchmark lending rate to 16.5 per cent for from 18 per cent held since December last year.

“We do not know the kind of environment we will be operating in over the next six months. We do not know if the performance will change but if this momentum can be maintained then it will be good,” said Dr Wawire.

James Dry, managing director Dry Associates said offshore asset classes are expected to perform better going forward, particularly those with a portfolio debt from emerging countries with a low debt-to-GDP ratio and whose currencies are expected to appreciate.