Capital Markets

NSE slump pushes pension returns into negative territory


The NSSF head office building in Nairobi. The NSSF offered a return of 7.5 per cent in the year ended June last year. PHOTO | FILE

A price slump at the Nairobi Securities Exchange (NSE) and lower earnings from offshore investments pushed pension schemes into negative returns for the 12 months to March.

The schemes recorded a negative 0.2 per cent return over the period compared to a 15.1 per cent gain in 2014, a new survey by Alexander Forbes Financial Services shows.

The survey which included 373 fund managers holding Sh535.3 billion - more than half the country’s pension industry – showed the best performing scheme posted a return of 15.8 per cent and the worst negative 8.1 per cent.

“The weighted average return of the participating schemes was negative 0.2 per cent over one year,” said Alexander Forbes.

Retirement savings’ rate of return posted by pension schemes each year are boosted by inflation underlining the importance of monitoring fund managers’ performances.

The average performance was below last year’s 6.8 per cent average rate of inflation, indicating most pensioners were worse off.

Pension savings were at Sh814 billion last December as per data from the industry regulator, Retirement Benefits Authority.

Pension schemes are currently under pressure to show they offer better returns pending the coming into effect of the Nationals Social Security Fund (NSSF) Act.

The Act makes it mandatory for all employees to save at least six per cent of their earnings with NSSF with an option of putting savings above the mandatory amount in private schemes.

The NSSF offered a return of 7.5 per cent for the year ended last June.

Implementation of the new law is being held back by a court order filed by the workers umbrella union, the Central Organisation of Trade Unions.

Over a three-year survey period the return of the pension schemes dropped to 9.8 per cent from 20.6 per cent due to last year’s negative performance. Most companies usually sign one or three-year contracts with the pension fund managers which advised the survey periods.  

Average return from the equities market over the year to March was negative 14.3 per cent compared to a gain of 23 per cent last year March.

The indicative NSE 20 share index dipped 21 per cent last year following introduction of the capital gains tax which saw foreign investors flee to Nigeria.

The schemes invest in equities, government securities and property, with the size of investment in each asset class normally determined by the prospective returns.

READ: Pension funds urged to keep NSE equities despite poor 2015 returns

All class assets are, however, capped by law.

Alexander Forbes found on average schemes invest bulk of their assets, 61.6 per cent, in fixed income, 30 per cent in equities, 7.4 per cent in property and one per cent abroad.

The average fixed income remained flat compared to last year at nine per cent underlining the reason why it is the preferred investment option – consistency.

Offshore performance decreased to negative one per cent as at March 2016 compared to above 10 per cent last year when the shilling was sliding against the dollar.