The market regulator has raised concerns about the slow growth of retirees’ cash pile after pension funds took a hit from the Covid-19 impact on real estate properties and stock prices in their portfolios.
The Capital Markets Authority (CMA) said total assets grew by 7.8 per cent to Kes1.3 trillion billion in 2020, highlighting impact of COVID–19 pandemic on the equities markets.
Retirees’ investments were also hurt by low occupancies in their real estate portfolios as well as rent defaults and tenants bargaining for lower rates.
A third of pension funds is invested in real estate and equities which took a big hit from the impact of the pandemic.
Equities make up 16.9 per cent, immovable property accounts for 16.73 per cent while 44.12 per cent of the total assets under management is placed in government securities.
Investments in guaranteed funds accounts for 16.74 per cent and the rest is split between cash, offshore, reits, fixed deposits and commercial papers.
“The pensions sector recorded sluggish growth in assets in 2020, reflecting valuation losses in capital markets,” CMA said in the third quarter soundness report.
“This performance was compounded by empty and or renegotiated rentals for office and residential properties held by pension schemes. In some cases, there were rent defaults and delayed sale of properties, leading to losses,” CMA said.
The market regulator is worried about insufficient funds to meet pensioners payments due to low penetration and increased life expectancy that has seen old citizens outlive their savings.
The regulator noted that poor performance of portfolios in the available pension assets is likely to continue to the end of the year eroding the little available saving.
Decline in stock prices at the Nairobi Securities Exchange (NSE) has dampened performance of pension funds across the market despite diversification across fund managers.
The NSE has so far shed Kes200 billion since hitting an all-time high of Kes2.93 trillion in August to the current Kes2.73 trillion.
The Covid-19 pandemic has also upended demand for office space as more companies observe remote working arrangements for their staff, while a tough economy has also hit the retail space —especially malls—due to reduced purchasing power among consumers.
Nedbank head of property finance for Africa Gerhard Zeelie told the Business Daily that there is uncertainty over the long term prospects of demand for office space across the continent while retail demand exists only in pockets such as Rwanda and Uganda.
A quarterly report by Retirement Benefits Authority (RBA) showed pension fund managers are exploring alternative investments including offshore assets seeking better returns.
“The schemes are expected to continue to invest in alternative assets given the broadening of the allowable investment categories and to take advantage of the public infrastructural projects under the big four agenda,” RBA said.
Offshore investments continued to record an upward trend increasing from Kes11.38 billion in December 2020 to Kes16.73 billion in June 2021 representing an increase of 47.7 per cent.
RBA said this can be partly attributed to the depreciation of the Kenya shilling against the dollar and the fact that schemes are pursuing diversification due to the stock market volatility.
Cash and Demand deposits also recorded a jump from Kes12.24 billion in December 2020 to Kes17.91 billion in June 2021 representing a 46.32 per cent increase.
Investment in private equity and venture capital continued to be attractive to schemes due its diversification effects, which increased by 49.78 per cent from Kes1.67 billion in December 2020 to Kes2.50 billion in June 2021
However, investments in listed corporate bonds, unlisted bonds, unquoted equities, fixed deposits, and REITS dropped during the period.
RBA said retirement benefits assets are expected to grow at a slow rate in the second half of 2021 owing to the effects and uncertainties arising from the coronavirus (Covid-19) pandemic and the political environment.
The public pension fund National Social Security Fund (NSSF) for instance saw its assets split between four fund managers decline to Kes190.26 billion in June 2021 from Kes209.76 billion last December.
The Kes19.5 billion decline was blamed on the underperformance in majority of firms trading on the Nairobi bourse.