Pension return beats inflation on rebound

Pension fund returns rebounded in the first quarter of this year thanks to higher returns from a recovering stock market and offshore investments, outperforming the average inflation rate in the period.

Industry analysis by fund administrator Zamara and Actuarial Services East Africa (Actserv) show the weighted average returns stood at 6.3 to 6.5 percent in the first three months, having been flat in the last quarter of 2018.

The recovery is mainly due to the performance of the stock market, where large cap counters benefited from renewed investor interest on full year earnings reporting period. In the first quarter, the NSE All Share Index was up 12.3 percent, having ended 2018 18 percent down.

“Over the quarter ended 31 March 2019, the median of the participating schemes was 6.3 percent compared to 0.3 percent in quarter four 2018; with strong performance attributed to a resurgence in the equity and offshore asset classes,” said Zamara.

Inflation

In the quarter, the average inflation stood at 4.4 percent, meaning contributors were able to make a gain in the real value of their investments.

The outlook on inflation is, however, less rosy for the second quarter due to rising food prices that pushed it up to 6.58 percent in April.

Coupled with a fall in the NSE all share index during the month (down 0.2 percent), funds could yet struggle to replicate the quarter one performance unless there is a marked shift in May and June.

Pension funds mainly invest in fixed income and equities, allocating 86 percent of their assets in these two classes.