Fixed income lifts pensioners’ return on investment to 8pc
Alexander Forbes group chief executive Sundeep Raichura at a past function. FILE
What you need to know:
Industry data compiled by Alexander Forbes Financial Services EA shows that the average return from fixed income for the schemes in 2016 stood at 14.3 per cent, compared to 7.8 per cent in 2015.
The 14.3 per cent return from the fixed income segment was higher than the average interest rate for the year on the 364-day Treasury bill, which stood at 11.75 per cent.
The Alexander Forbes survey covered 384 schemes with a total of Sh596.5 billion of assets under management.
Pensioners are set to enjoy much higher return on investment at eight per cent for 2016 compared to 0.5 per cent the previous year after schemes reallocated assets to fixed income from the slumping equities market.
The average return for the pension schemes thus outperformed the rate of inflation which stood at an average of 6.3 per cent last year. In 2015, schemes had been forced to settle for returns far below the average inflation rate of 6.6 per cent, in essence wiping out any gains they made during the year.
Industry data compiled by Alexander Forbes Financial Services EA shows that the average return from fixed income for the schemes in 2016 stood at 14.3 per cent, compared to 7.8 per cent in 2015. The return from equities remained negative, coming in at -9.6 per cent compared to -11 per cent in 2015.
Low returns are problematic for pension funds since they leave them short of liquid assets they can use to pay retirees, whose numbers will have increased significantly over the past three years. This is because parastatal workers whose retirement age had been raised from 55 years to 60 years in 2009 started retiring in 2014.
“The survey indicates that the average scheme’s exposure to equities is shrinking. The main reason for this is the fall in prices of quoted equities caused by poor market sentiment and preference for fixed income investments.
Thus the fixed income and property exposure is higher. Offshore allocation went down slightly by 0.1 per cent,” said Alexander Forbes in the report.
The average scheme raised its fixed income asset allocation to 74.9 per cent, from 70.5 per cent in 2015.
Average equities
At the same time, they cut their average equities allocation to 19.6 per cent of total assets from 25.1 per cent a year earlier.
These returns indicate, however, that the schemes were able to outperform the market average for the respective asset classes, suggesting prudent portfolio picks.
The 14.3 per cent return from the fixed income segment was higher than the average interest rate for the year on the 364-day Treasury bill, which stood at 11.75 per cent.
On the equities side, the NSE 20 share index ended last year 21 per cent down, meaning at -9.6 per cent in returns the pensions sector was an outperformance of the market.
The pension funds majorly invest in blue chip counters at the Nairobi Securities Exchange such as Safaricom, EABL, KCB, BAT and Equity Bank, eyeing their track record of long-term stability and generous dividend payout.
While EABL and the bank stocks had a negative return last year, Safaricom and BAT were among the nine stocks in the market with a share price gain, which would have helped the portfolios of pension funds.
The Alexander Forbes survey covered 384 schemes with a total of Sh596.5 billion of assets under management.
