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Falling interest rates slow pension returns to 24.8pc in 2025
Bonds and listed shares account for 62.6 percent of the pension sector’s Sh2.53 trillion total assets in June 2025, as per the latest data from the Retirement Benefits Authority, with guaranteed funds the other major holding at 19.6 percent.
Pension fund returns declined to 24.8 percent in the year to December 2025 from 28.8 percent in 2024 as lower returns from fixed income assets weighed down improved yields from equities and offshore investments.
Analysis by pension funds administrator Zamara shows that the average return from fixed income assets stood at 19.7 percent in the year, down from 25.2 percent in 2024, with equities returns rising to 63.4 percent from 51.6 percent, and offshore assets at 14.5 percent compared to a negative 0.2 percent in 2024.
The returns comfortably beat the average annual inflation of 4.07 percent in 2025, marking the second year in a row that pension savings were protected from erosion in real terms. In 2024, inflation averaged 4.52 percent.
Zamara sampled 406 schemes with Sh1.51 trillion in assets under management (excluding property) when analysing the returns from the sector.
“This performance drop was attributed to lower performance by the fixed income asset class,” said Zamara in its analysis.
In the fixed income segment, interest rates on government securities came down last year in line with the Central Bank of Kenya (CBK) cutting its benchmark rate from 11.25 percent to nine percent between January and December.
Treasury bonds issued last year —the majority of them being reopenings from past auctions—paid investors annual interest of between 11.67 percent and 14.63 percent.
In 2024, the returns from bonds peaked at 18.46 percent, which was available on an 8.5-year infrastructure bond sold in February 2024.
As interest rates fell, however, bond prices in the secondary market at the Nairobi Securities Exchange (NSE) rose, handing the pension funds some capital gains on their holdings.
Bond yields and prices at the secondary market feature an inverse relationship where a rise in one signals a decline in the other.
Treasury bill interest rates fell to a range of 7.7 percent to 9.23 percent in December 2025, from 9.8 percent to 11.4 percent at the beginning of the year.
For funds invested in fixed deposits in banks, interest rates declined progressively through the year, settling at 7.28 percent in November from 10.05 percent in January.
In the equities market, the funds enjoyed capital gains on their portfolios as the bourse added Sh1 trillion or 51.8 percent to investor wealth to reach Sh2.94 trillion.
Due to their long investment horizon and lower risk appetite, pension funds usually invest in long-term bonds, which ensure security of investment while generating returns of more than 10 percent in most years.
In the equities market, they mainly invest in large blue-chip stocks that offer long-term price stability and regular dividend distribution. Such forms also have ample liquidity that allows for large ticket purchases for the funds.
In 2025, the NSE’s top four firms by market capitalisation—Safaricom, Equity Group, KCB Group, EABL and Co-operative Bank of Kenya—recorded price gains of between 34 and 65 percent.
Bonds and listed shares account for 62.6 percent of the pension sector’s Sh2.53 trillion total assets in June 2025, as per the latest data from the Retirement Benefits Authority, with guaranteed funds the other major holding at 19.6 percent.
In the year to June 2025, the total assets grew by 27.9 percent or Sh552 billion, partly boosted by higher contributions to the State-controlled National Social Security Fund.
