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Over the past 10 years, the Pensions industry has recorded tremendous growth in Assets under Management (AUM) having grown by a 10 year CAGR of 14.5% to Kshs 1,547.4 billion in December 2021, from Kshs 432.8 billion in December 2011. The growth is mainly attributable to increased public awareness of the importance of pensions as well as the favorable regulatory reforms. This has seen more people join pension schemes as they strive to grow their retirement pot. Retirement benefits schemes strive to ensure that their members have a sufficient source of income upon retirement. They achieve this by allowing members to make regular contributions during their working years and ensuring that the contributed funds are invested in prudently identified investments that ensure safety and generate returns.
The Retirement Benefits Authority (RBA) through the investment regulations and policies, provides investment guidelines on which asset classes retirement benefits schemes can invest in and the maximum limits. As such, the returns on investment differ from one scheme to another depending on the investments made and also the percentage of funds allocated to each of these investments. Additionally, each scheme has its own Investment Policy Statement (IPS) that outlines the investment principles and guidelines that are adopted by the Fund Manager on the asset allocation targets as well as the strategic considerations taking into account the scheme’s age liability profile. Some of the common asset classes that retirement benefits schemes invest in include:
Other investment classes that retirement benefit schemes invest in include Real Estate Investment Trusts (REITs), Unquoted Equities, and offshore investments. The table below shows the historical asset allocation by retirement benefit schemes over the last 5 years as well as the respective maximum regulatory limits:
Kenyan Retirement Benefits Schemes Funds Asset Allocation |
|||
No |
Asset Category |
Average Asset Allocation over the last 5 years (2017-2021) |
Maximum allowable allocation |
1 |
Government Securities |
41.7% |
90.0% |
2 |
Quoted Equities |
17.3% |
70.0% |
3 |
Immovable property |
18.7% |
30.0% |
4 |
Guaranteed Funds |
15.3% |
100.0% |
5 |
Listed Corporate Bonds |
1.9% |
20.0% |
6 |
Fixed Deposits |
2.8% |
30.0% |
7 |
Offshore |
1.0% |
15.0% |
8 |
Cash |
1.0% |
5.0% |
9 |
Unquoted Equities |
0.3% |
5.0% |
10 |
Private Equities |
0.1% |
10.0% |
11 |
REITS |
0.0% |
30.0% |
12 |
Commercial Papers & Non-listed bonds |
0.0% |
10.0% |
13 |
Others. For example Unlisted Commercial papers |
0.0% |
10.0% |
The above asset classes are the vehicles used by pension schemes to ensure that the members’ funds achieve attractive returns. Some of the factors that that fund managers consider before deciding on which asset class to invest on include:
In conclusion, it is important for a fund manager to do thorough research before making a decision on where to invest. This will ensure that the retirement benefit scheme is adequately liquid, compliant with the law and members saving are safe and generate returns. Members should also know the portfolio mix of different Retirement Benefit Schemes before they decide on which scheme to join. This will help one assess the risk profile of the scheme and evaluate whether the risk profile is within one’s threshold of risk tolerance.
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