Pension fund returns improved to an average of 6.4 percent in the year to June 2023 compared to less than one percent a year earlier following the improved performance of equities and offshore assets.
Industry surveys carried out by Actuarial Services East Africa (Actserv) and pension fund administrator Zamara shows that while the weighted average return for equities remained in the red over the period, there was an improvement from the double-digit decline seen in the 12 months to June 2022.
Actserv’s survey put the equities returns at -6.0 percent, compared to -17.5 percent in June 2022, while Zamara’s survey gave equities a return of -5.8 percent, compared to -18.7 percent a year ago.
On the overall returns, Actserv reported an improvement from 0.4 percent in June 2022 to 6.1 percent this year, while Zamara’s survey shows an improvement from 0.5 percent to 6.7 percent.
Pension funds normally invest in large, stable blue chip stocks at NSE, which offer better security against loss of savers funds while generating steady returns from dividends and potential long-term capital gains.
They, therefore, carry a large exposure in the largest firms which include Safaricom, Equity Group, KCB Group and EABL.
“The improvement in local equities was attributable to the divergence between corporate earnings growth and stock prices, which has enhanced attractiveness,” said Actserv in its Quarter Two 2023 pension schemes investment survey.
Offshore investments meanwhile turned around a decline of 16.6 percent in the previous year to offer a return of 37.3 percent this year.
The asset allocation to offshore investments, which are deemed risky, is small at 2.36 percent, reducing the impact of their performance on the overall returns for schemes.
Fixed income returns remained relatively stable at 8.5 percent in the period, compared to 7.3 percent in 2022.
Government bonds
This asset class holds the bulk of pension fund investments, accounting for 80.6 percent of total assets, ahead of equities at 16.6 percent.
The low-risk government bonds market offers pension funds stable, long-term income, which fits in with the lengthy maturity profile of the savings they handle for workers.
The improved performance of schemes in general cuts the value of pension savers’ wealth that has been bled to inflation, which averaged 8.7 percent in the 12 months to June 2023.
The returns from investments determine the interest that pension funds pay savers on their contributions each year, after factoring in administrative and other fund management expenses.
