Kenya: Pension returns up five percentage points on stocks gains

Pension fund returns rose by five percentage points in 2021 on improved performance of equities and offshore investments, signalling higher interest earnings for savers.

Pension fund administrator Zamara said that in 2021, the median return for schemes stood at 12.4 percent compared to 7.3 percent in 2020.

The higher returns were mainly driven by a rebound in equities, where returns stood at 18.4 percent in the year compared to a decline of 10.4 percent in 2020. This asset class accounts for 22.2 percent of total investments among the funds.

The funds were therefore able to comfortably beat annualised inflation (6.1 percent) in their annual returns.

“Performance was positively impacted by the resilience in the equities market and offshore investments. In 2021, the Kenyan equities market recovered to record a growth of 9.4 percent, compared to an 8.6 percent decline in 2020 as measured by the NSE All-Share Index,” said Zamara.

Pension funds normally invest in large, stable blue chip stocks at the Nairobi Securities Exchange (NSE) which offer better security against loss of savers funds while generating steady returns from dividends and potential long-term capital gains.

They, therefore, carry a large exposure in the largest firms which include Safaricom, Equity Group, KCB and EABL.

In 2021, Equity’s stock gained 55.2 percent, while KCB was up 23.2 percent as banks’ performance recovered strongly from the profit decline of 2020.

Safaricom and EABL made gains of 15.4 percent and 9.8 percent respectively, with the former underpinning the general recovery due to its dominance in market.

Offshore investments returned 20.5 percent, although they account for just two percent of assets under management.

Fixed income investments’ return stood at 10.4 percent. This asset class offers the most stable returns for pension funds over a longer period of time due to the low volatility in the Treasury bond’s yield curve.

They, therefore, allocate the bulk of their funds to government securities, with the fixed income segment accounting for 65.1 percent of all assets under management by the end of last year.