NSE bear run slashes Sh40bn pension savings

The stock market bear run eroded nearly Sh40 billion of workers’ retirement savings in six months to December last year, pulling the pension industry assets into a first decline in seven years.

Industry data released by the Retirement Benefits Authority (RBA) shows the value of workers’ savings invested in Nairobi Securities Exchange (NSE) listed companies dropped by Sh39.95 billion to Sh201.51 billion in December from Sh241.46 billion in June 2018.

RBA, the sector regulator, says the stock market slide was responsible for the Sh210 million drop in overall retirement benefits assets in the six-month period.

The industry assets contracted to Sh1.16649 trillion in December 2018 from Sh1.16670 trillion in June, marginally reversing a steady rise since December 2011 when they fell to Sh403.18 billion from Sh440.44 billion six months earlier.

“The decrease in the assets during the half year can be attributed to the volatility in the stock market of which investment in quoted equities decreased by 19.83 percent,” says RBA in the report.

Retirement savings

A decline in retirement savings signals gloomy prospects for retirees, who put aside a portion of their income in the hope of financial comfort in their sunset years.

The equities market tailed off steadily from the second quarter of 2018 after recording a strong start to the year, market data indicates.

Market capitalisation of publicly-traded firms, a measure of investors’ paper wealth, dropped by Sh449.76 billion, or 17.63 percent between June and December 2018 to Sh2.102 trillion.

The volatility in the equities market was partly blamed on uncertainty created by the June 2018 taxation proposals such as a 0.05 percent excise duty on cash transfers above Sh500,000 by banks, money transfer agencies and other financial service providers.

The proposal by Treasury Secretary Henry Rotich, which was later shot down by legislators after intense lobbying by market players, ignited a massive sell-off of shares by foreign investors, pushing down the value of NSE stocks.

The streak of net outflows by foreign investors on the NSE, which started in earnest in April 2018, was only broken in February 2019, according to data released by the Capital Markets Authority (CMA) on April 24.

Quoted stocks is the third-largest of the asset classes held by pension schemes after risk-free government securities and value-appreciating real estate, meaning its performance directly affects returns on investment made by Kenyan workers.

Pension schemes, which are legally allowed to invest up to 70 percent of assets in quoted and preference equities, were left bruised after enduring a torrid year on the stock market in 2018.

A February analysis by pension funds administrator Zamara indicated returns from quoted equities sank to an estimated negative (-) 13.4 per cent, a steep decline from 29.3 percent in 2017.

A separate survey by Actuarial Services East Africa (Actserv) pointed to a -11 percent return in 2018 compared 28.7 percent the year before.
“Aggressive schemes posted the lowest returns caused by a higher allocation to the equity,” Zamara said in its report.

The data indicates that about Sh980.06 billion of the retirement benefit savings were under the watch of 16 fund managers (Sh812.61 billion) and 15 approved issuers (Sh167.45 billion) last December, a Sh18.11 billion drop from June’s value but Sh75.15 billion more than Sh904.91 billion in 2017.

“The asset diversification remained similar to the previous periods with most of the asset classes recording minimal decreases/increases. Fund managers and approved issuers did not report any investments under the ‘any other asset class category’ during the period,” the regulator says.

NSSF assets

The value of assets under the National Social Securities Fund (NSSF), on the other hand, dropped Sh11.47 billion to Sh209.89 billion in December 2018 compared with six months earlier.

The statutory savings by workers grew by a marginal Sh630 million, or 0.30 percent, compared with Sh209.26 billion in December 2017.

NSSF was managing Sh83.89 billion internally last December, the statistics indicate, while assets managed by fund managers on its behalf fell to Sh125.91 billion from Sh125.91 billion in June.

“The overall NSSF portfolio is heavily invested in government securities, quoted securities and immovable property at 46.98 percent, 25.28 percent and 17.92 percent, respectively,” RBA says.

Overall, pension schemes raised their allocation to Treasury bills and bonds by Sh65.49 billion to Sh459.68 billion in 2018 compared with a year earlier, while equities outlay dropped Sh8.66 billion year-on-year to Sh201.51 billion.

Investment in property went up by Sh3.19 billion to Sh229.91 billion, while an additional Sh24.48 billion was injected in guaranteed funds which closed 2018 at Sh167.45 billion.

As a share of total pension assets, government securities grew the highest to 39.41 percent last year from 36.49 percent in 2017 followed by guaranteed funds which made up a 14.36 percent share from 13.24 percent in 2017.

The share of property investments, on the other hand, slowed to 19.71 percent from 20.99 percent, while quoted equities’ dipped to 17.27 percent from 19.46 percent, the RBA data shows.

“The retirement benefits sector is expected to grow in the 2019 given the relatively stable political environment and the gradual comeback of the stock market,” the regulator projects.

Foreign portfolio

CMA data indicates that net foreign portfolio levels in first quarter of 2019 amounted to inflows of Sh601 million from an outflow of Sh6.67 billion in the quarter ended last December, Sh6.71 billion in the quarter through last September and Sh8.18 billion the quarter before.

The return of foreign investors gives a glimmer of hope for better returns this year.