Retired civil servants suffer Sh2.1bn bond paper losses

Retired civil servants queue at Huduma Center in Kisumu for a headcount exercise.

Photo credit: File | Nation Media Group

The Public Service Superannuation Fund (PSSF) realised Sh2.1 billion in paper losses across two financial years to June 2023 from the revaluation of its holdings in government securities.

The revaluation losses are due to falling bond prices in the past year amid a rise in interest rates on Treasuries in both the primary and secondary market, warranting devaluation in the carrying value of the securities.

Such losses are recognised as an operating cost similar to depreciation.

While the PSSF may not realise the losses by holding their purchased government papers to term, the scheme disclosed the Sh2.1billion paper loss, which comprises Sh1.8 billion in fair value losses in the year to June, Sh714.1 million in losses prior, less Sh425.4 million in prior year’s accrued interest income.

PSSF, the State-run pension scheme that draws contributions from government employees including the public service, teachers, and the police, which are matched by the exchequer invests primarily in Treasury bills and bonds.

In the financial year ended June 2023, the fund had Sh77.9 billion invested in government securities including Sh71.5 billion in Treasury bonds and Sh6.3 billion in bills.

In the financial year to June 2023, the fund raised its investment in Treasury bonds from Sh35.9 billion while investing Sh8.3 billion in Treasury bills during the period.

The fund however lost Sh3 billion from the sale of papers in the same period including Sh1 billion from disposed Treasury bonds and Sh1.9 billion from the sale of Treasury bills.

PSSF invested 98.8 percent of its assets over the review period in government securities against the statutory maximum threshold of 90 percent, leaving it at odds with the provisions of the Retirement Benefits Authority (RBA).

The fund nevertheless notes it decided to invest in government securities as a risk mitigation measure following the Covid-19 pandemic shock.

“The fund has adopted a result-oriented and risk-based approach in order to balance between appetite for good returns and risk exposure. Owing to the impact of Covid-19 on investment returns, the board decided to invest in government securities so as to ensure guaranteed returns on the investments,” PSSF stated in its annual report.

The PSSF however held Sh904.1 million in cash and cash equivalents including Sh11.6 million in current accounts and Sh792.5 million in on-call deposits and fixed deposits.

Despite its conservative stance, the pension scheme is allowed to invest in other asset classes including equities, immovable properties, guaranteed funds, corporate bonds, offshore, private equity, and real estate investment trusts (Reits).

During the year to June 2023, the scheme earned Sh5.5 billion from its investments including Sh5.2 billion from Treasury bonds, Sh180.8 million in Treasury bills, and Sh55.9 million in cash investments and fixed deposits.

The fund earned additional income in the period from interest on bank balances and from the purchase of government securities.

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