Markets & Finance

Pension schemes record poor returns in 2015 as stocks dip

brokers

Brokers trade on the floor of the Nairobi bourse. The benchmark NSE 20 Share Index lost more than 20 per cent last year. PHOTO | FILE

The average pension scheme performed poorly in 2015 with contributors losing money for the first time since 2011.

As the stock market tanked by more than a fifth last year and the shilling weakened significantly, the schemes grew by a paltry 0.5 per cent against an inflation level of eight per cent, leaving the net return at a negative level.

According to the latest Alexander Forbes Consulting Actuaries Schemes Survey (AFCASS), the returns to pension schemes were influenced by the falling value of the shilling and the resulting spike in interest rates that had a negative impact on listed companies.

At its weakest point last September, the shilling was down 14 per cent relative to the beginning of the year, forcing the monetary regulator to push up the cost of money to curb further currency losses.

“The survey indicates that the average scheme did not always outperform overall inflation over the one-year period, with the real returns in 2008, 2011 and 2015 being negative,” said the report.

The weakening of the shilling in 2011 that resulted in the Central Bank of Kenya (CBK) tripling the base rate to 18 per cent from six per cent saw investors flee the Nairobi Securities Exchange (NSE) and go to fixed-income securities.

In 2008, the NSE suffered due to the general economy declining after the post-election violence.

The survey used data from 378 schemes that have Sh536 billion in assets under management.

For 2015, the low overall returns were due to the poor performance of the NSE with schemes having an average negative return of 11.9 per cent from investments made on the bourse. The benchmark NSE 20 Share Index lost more than 20 per cent last year.

READ: NSE 2015 performance below other frontier markets

Rising interest rates and the weakening of the shilling are some of the causes of the poor performance at the bourse in 2015.

Returns on bonds and offshore investments were, however, up by 4.7 per cent and 10.5 per cent respectively.

The AFCASS’s findings echo announcements by listed insurers that also said they expect to take a hit on their profits due to the poor performance of the NSE.

Pan Africa Insurance, Britam, Liberty Holdings and UAP/Old Mutual Group issued profit warnings, which they said were partly driven by the expectation of reduced income from investments made in the bourse.

“The decline in the group’s profitability is attributed to the downturn in the operating economic environment.

“This caused a slump in the performance of the Nairobi Securities Exchange which had a significant impact on the fair value gains on the Group’s financial assets,” said Britam in late December when it issued its profit warning.

The stock markets poor performance was also the result of listed companies performing poorly in 2015 with a record 17 publicly-traded companies issuing profit warnings last year.

Analysts expect that fortunes at the NSE could change this year as the general economy picks up due to investment in infrastructure and the recovery of sectors such as tourism.