Pension funds participation in market drops

Pension schemes cut investment in securities on Covid-19 disruptions, blunting local investor stake in the economy and making Kenya slip four positions in an index that ranks countries’ financial market attractiveness.

The Absa Africa Financial Markets Index 2021 shows that reduced pension investment saw Kenya lost 17 points in the index that measures local investor capacity.

The country scored 24 points out of 100, from 41 in 2020.

The local investor capacity was based on the size of pension funds - key domestic market participants - and its potential to drive market activity through investment in the securities market.

The report shows Kenya’s percentage of pension fund assets in listed securities has dropped compared to 2020 against countries like Namibia, Uganda, Cameroon, and Nigeria whose investment in the local market jumped.

The shrink in Kenya’s pension assets position saw the country’s overall score drop to 47 from 58.

The country dropped four places as the most attractive financial market in Africa to 11 from 7 in 2020.

The report also assessed progress in other five areas: market depth, access to foreign exchange, market transparency, tax and regulatory environment, macroeconomic opportunity, and enforceability of standard master agreements.

The survey has attributed the drop in scores to disruptions in member contributions and policy cancellations witnessed from last year.

“The pandemic put pressure on pension funds to help mitigate socio-economic effects of the crisis, even as they coped with disruption to contributions and loss of membership,” the report stated.

‘’The crisis has shown, however, that the size of local assets can have implications not just on capital market development, but on an economy’s ability to respond to crisis”

Other countries also dropped their scores - South Africa (77) Mauritius (68), Nigeria (44), and Tanzania (23), and Ghana (21) which trailed below Kenya - due to lower pension fund assets.

As a result, aggregate pension fund assets among 23 African countries surveyed declined by 1.9 percent.

Other countries improved their scores in the pension assets positions like Namibia (100), Zambia (18), and Uganda (16).

Last year, pensions recorded increased withdrawals and surrenders due to revenue declines and job cuts induced by the pandemic.

Many insurers were forced to divest from where they had invested money, such as in Treasury bonds, to meet obligations of increased withdrawal requests for pensions and surrenders from life products.

Despite the growth in pension assets, insurers have kept their attractiveness to government securities, reducing investment in corporate bonds and shying away from equities due to a decline in valuation.

Net premium income from pension class was Sh21.65 billion in six months to June, a 17 percent growth from Sh18.5 billion in a similar period last year, according to Insurance Regulatory Authority.