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Pension schemes’ returns jump to 28 percent in 2024
Equities investments gave a return of 51.6 percent in the period, while fixed income securities offered total returns of 26.8 percent, while offshore assets returned negative two percent.
Pension savers are set to reap big after their funds recorded the highest annual returns in 12 years, backed by a good performance from equities and fixed income investments.
A survey of pension returns done by fund administrator Zamara shows that the average annual return for pension funds stood at 28.8 percent last year, up from 1.6 percent in 2023.
This is the highest overall return recorded by the funds since 2012 (28.4 percent), showing the positive translation of last year’s rally in share prices at the Nairobi Securities Exchange (NSE) on savers’ funds.
Equities investments gave a return of 51.6 percent in the period, while fixed income securities including bonds, Treasury bills and cash deposited in fixed accounts offered total returns of 26.8 percent, while offshore assets returned negative two percent.
This meant that returns comfortably beat the average annual inflation of 4.52 percent in 2024, after the previous year’s poor performance handed savers an erosion in the real value of their funds, by trailing inflation of 7.7 percent.
“In the 12 months ended December 2024 … the improvement was driven by positive fixed income and equity market performance,” said Zamara in the report.
Zamara analysed 386 schemes with Sh1.117 trillion of assets under management in the survey.
Due to their long investment horizon and lower risk appetite, pension funds usually invest in long term bonds and blue-chip equities, which ensure security of investment.
Last year, investor wealth at the NSE grew by 34.8 percent or Sh500.7 billion to Sh1.94 trillion.
The top four listed firms by market capitalisation —Safaricom, Equity Group, EABL and KCB Group— collectively added 35 percent to their market cap, after recording share price jumps of between 23 and 90 percent in the period.
These stocks account for the bulk of pension fund investments in the NSE, mainly due to stable dividend policies, solid fundamentals and ample liquidity that allows for large ticket purchases for the funds.
On the fixed income end, pension funds enjoyed higher interest payments on bonds issued last year, even though the value of some bonds was eroded by rising yields (yields and prices move in opposite directions).
Those holding longer term infrastructure bonds however saw the prices of their securities go up towards the end of the year, as yields came down, making those high interest papers attractive to investors who were then prepared to pay a premium to secure them.
Overall, the weighted average allocation to equities by the schemes rose to 15.1 percent in December 2024, from 13.6 percent a year earlier, while fixed income assets stood at 74.6 percent, down from 75.2 percent in December 2023.
The funds cut their exposure to property from nine percent of assets under management to 7.7 percent, while raising offshore investments from 2.2 percent to 2.6 percent despite the negative returns.
