Pension funds return in the third quarter of the year fell to 0.4 per cent compared to 6.6 per cent in quarter three to September, attributed to lower returns from fixed income assets.
Analysis done by fund administrator Zamara on pension schemes performance shows that fixed income investments had a zero return in the period, compared to 2.1 per cent for equities and 4.8 per cent for offshore assets.
In the second quarter, fixed income assets had a return of eight per cent, compared to 0.3 per cent and 1.5 per cent for equities and offshore investments respectively.
“This (drop in performance in quarter three) was attributed to relatively lower performance from the fixed income asset class,” said Zamara in the survey.
Despite the low overall return, pension funds remained above the quarterly inflation rate which stood at -0.1 per cent. The funds’ return of 17.3 per cent in the year to September also beat annual inflation, which stood at 3.6 per cent.
When pension returns fall below the rate of inflation, members suffer an erosion of the value of their savings, which when compounded over time negatively impacts on the future payouts they will receive from their fund.
Zamara polled 391 schemes with a total of Sh1.04 trillion in assets under management (AuM) —excluding property— in the periodic quarterly survey.
Pension funds tend to have large exposure to fixed income assets such as risk free government bonds and fixed deposits, owing to their largely conservative in their investment approach.
Allocation to fixed income assets stood at an average of 80.3 per cent of AuM in the third quarter, followed by equities at 12.3 per cent, property at 5.3 per cent and offshore assets at 2.1 per cent.
In quarter two, fixed income investments accounted for 80 per cent of total assets, followed by equities at 13 per cent, property at 5.2 per cent and offshore at 1.8 per cent.
Interest rates on government bonds issued in the quarter came down as the Central Bank of Kenya (CBK) sought to lower the cost of government debt.
The rates are expected to fall further in coming months as the CBK continues to lower its base rate in order to stimulate private sector lending by banks and spur growth of the economy.
