Pension funds operate with the primary goal of providing employees with either a lump-sum payment or a consistent income stream during their retirement years. In Kenya, where the average retirement age is approximately 60 and life expectancy at birth is 67, pension funds play a pivotal role. Recent data from 2022 indicates that the Pension fund sector has amassed an impressive asset under management (AUM) of Ksh. 1.5 Trillion, contributing about 13.3% to the nation’s GDP.
The pension fund landscape in Kenya predominantly involves investments in equity and offshore assets. These portfolios often encompass major market-cap companies like Safaricom, Equity Group, EABL, and KCB. Notably, pension fund returns have witnessed a notable uptick, with an average increase of 6.4 percent in the year leading up to June 2023. This marks a substantial improvement compared to the meager one percent seen in the preceding year, attributed to the enhanced performance of equities and offshore assets.
According to surveys conducted by Actuarial Services East Africa (Actserv) and pension fund administrator Zamara, the return averages for equities remain in the negative, but there’s evident progress compared to the double-digit decline witnessed in the 12 months up to June 2022. Actserv’s survey reports equities returning at -6.0 percent, a significant recovery from -17.5 percent in June 2022. Similarly, Zamara’s survey showcases equities with a return of -5.8 percent, a marked improvement from -18.7 percent a year earlier.
Regarding overall returns, Actserv’s data shows a shift from 0.4 percent in June 2022 to 6.1 percent in the current year. Zamara’s findings align with this trend, indicating a move from 0.5 percent to 6.7 percent.
Pension funds typically opt for secure, established blue-chip stocks on the NSE (Nairobi Securities Exchange), ensuring a balance between safeguarding savers’ funds and generating consistent returns through dividends and potential capital gains over the long term. Actserv’s Quarter Two 2023 pension schemes investment survey attributes the uptick in local equities to the growing discrepancy between corporate earnings growth and stock prices, enhancing their appeal.
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