According to the ACTSERV 2021 Retirement Benefits Schemes Investments Performance Survey, segregated retirement benefits schemes recorded an 11.6% return in 2021, up from the 7.0% recorded in 2020. The increase was largely supported by the performance of equities investments made by the schemes which recorded a 16.9% gain, up from a 10.4% decline recorded in 2020 on the back of the gradual economic recovery. The chart below shows the quarterly performance of segregated pension schemes since 2020:
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Over the period 2013 to 2021, segregated schemes’ returns have been fluctuating to a high of 20.3% in 2013 and a low of 1.4% in 2015 reflective of the markets performance. The chart below highlights the performance of the segregated pension schemes since 2013:
Source: ACTSERV Surveys
Notably, retirement benefits schemes in the country have continued to allocate members’ funds towards Government securities and Quoted Equities with the average over the period 2013 to H1’2021 coming in at 57.6% of the total allocations. The higher allocation is towards government securities, which has averaged 37.7% over the same period and is the highest among all the asset classes invested in. This can be attributed to the fact that retirement benefits schemes prioritize the safety of their members' funds and prefer a high allocation to low risk investments. The table below shows how Kenyan retirement benefits schemes have invested their assets since 2013:
|
Kenyan Pension Funds Asset Allocation |
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|
Asset Category |
Dec-13 |
Dec-14 |
Dec-15 |
Dec-16 |
Dec-17 |
Dec-18 |
Dec-19 |
FY'2020 |
H1'2021 |
Average |
RBA Maximum Limit |
|
Government Securities |
33.8% |
30.7% |
29.8% |
38.3% |
36.5% |
39.4% |
42.0% |
44.7% |
44.1% |
37.7% |
90.0% |
|
Quoted Equities |
25.5% |
25.8% |
22.9% |
17.4% |
19.5% |
17.3% |
17.6% |
15.6% |
16.9% |
19.9% |
70.0% |
|
Immovable Property |
17.2% |
16.5% |
18.5% |
19.5% |
21.0% |
19.7% |
18.5% |
18.0% |
16.7% |
18.4% |
30.0% |
|
Guaranteed Funds |
10.3% |
11.9% |
12.2% |
14.2% |
13.2% |
14.4% |
15.5% |
16.5% |
16.7% |
13.9% |
100.0% |
|
Fixed Deposits |
4.9% |
5.3% |
6.8% |
2.7% |
3.0% |
3.1% |
3.0% |
2.8% |
2.5% |
3.8% |
30.0% |
|
Listed Corporate Bonds |
4.4% |
5.9% |
5.9% |
5.1% |
3.9% |
3.5% |
1.4% |
0.4% |
0.2% |
3.4% |
20.0% |
|
Offshore |
2.2% |
1.9% |
0.9% |
0.8% |
1.2% |
1.1% |
0.5% |
0.8% |
1.1% |
1.2% |
15.0% |
|
Cash |
1.3% |
1.4% |
1.4% |
1.4% |
1.2% |
1.1% |
1.2% |
0.9% |
1.2% |
1.2% |
5.0% |
|
Unquoted Equities |
0.6% |
0.6% |
0.3% |
0.4% |
0.4% |
0.3% |
0.3% |
0.2% |
0.2% |
0.4% |
5.0% |
|
Private Equity |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.1% |
0.1% |
0.1% |
0.2% |
0.1% |
10.0% |
|
REITs |
0.0% |
0.0% |
0.0% |
0.1% |
0.1% |
0.1% |
0.0% |
0.0% |
0.0% |
0.0% |
30.0% |
|
Commercial Paper, non-listed bonds by private companies* |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
10.0% |
|
Others e.g. Unlisted Commercial Papers |
0.0% |
0.0% |
1.2% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.0% |
0.1% |
10.0% |
|
Total |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
100.0% |
|
|
Commercial paper, non-listed bonds and other debt instruments issued by private companies was introduced as a new separate asset class category in 2016 through the legal notice No. 107. |
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Source: Retirement Benefits Authority (RBA)
The allocation to government securities has been increasing over the years to 44.1% in H1’2021 from 36.5% 2017, but declined by 0.6% points from 44.7% in 2020. On the other hand, the allocation towards quoted equities increased by 1.3% points to 16.9% in H1’2021, from 15.6% as of December 2020 highlighting the gradual economic recovery from the adverse effects of COVID-19 witnessed during the period. Similarly, retirement benefits schemes’ investments in offshore markets increased by 0.3% points to 1.1% in H1’2021, from 0.8% recorded in December 2020 attributable to the impressive performance of the asset class as it recorded returns of 31.7% per annum in the year 2020 as global markets performed better than expected coupled with the depreciation of the Kenyan shilling.
In general, returns for segregated retirement benefits schemes have been fluctuating over the years. As such, it is important for Fund Managers to have a well-balanced portfolio on a risk-return basis to ensure that they offer their members high returns and at the same time protecting their contributions. In 2021, retirement benefits schemes have been on a recovery path having gained by 11.6% in comparison to the 7.0% gain recorded in 2020. We expect continued growth in 2022 given the continued regulatory changes in the Retirement Benefits Industry and increased investment expertise. Additionally, we anticipate growth in returns on the back of the gradual economic recovery as the macroeconomic environment stabilizes. The growth can be further supported by:
- Trustees Professionalism: The RBA has made it compulsory for Trustees of registered Retirement Benefits Schemes to be certified through the Trustee Development Program of Kenya (TDPK) which is commendable and will improve the trustees’ capability to manage schemes,
- Extending the limit on withdrawals to voluntary benefits in the individual schemes: The RBA has provided withdrawal limits on benefits before retirement age mostly to umbrella, occupational pension schemes and personal schemes for savings transferred from occupational or umbrella schemes. As such, members of individual pension schemes are able to withdraw their benefits for which the trustees have given approval at any time before retirement,
- Increased Competition by the Various Players in the Market: The RBA has continued to issue licenses to new players in the market and this will beef up competition in the industry keeping the Fund Manager on their toes to ensure that they offer higher returns to their members, and,
- Innovation and Product Development: In 2020, the RBA and the Ministry of National Treasury released amendments to the Mortgage Regulations allowing pension scheme members to be able to buy houses using a portion of their benefits, and introduced a new asset class, Public Private Partnership into the list of allowable list of asset classes to invest in. Through increased member education, we believe that schemes can leverage on these new regulations to the benefit of their members and draw more people into their schemes.
Despite the fluctuating returns witnessed over the years, segregated retirement schemes have delivered a 5-year average return of 11.7% p.a. for their members, which is above the 2021 average inflation rate of 6.1% and returns from other savings platforms like bank deposits of 7.7% during the same period. As such, we believe that more people in their working years should save for retirement in retirement benefits schemes in order to secure their income post retirement and enjoy the real positive returns on offer.
For more information, kindly see our topical on Kenya Retirement Benefits Schemes FY’2021 Performance.
