Pension contributors face looming financial challenges as annual investment returns in 2023 dipped below the inflation rate, according to a study by fund administrator Zamara.
The study revealed a decrease in the weighted average returns of pension schemes by 0.3 percentage points to 1.4% in 2023 from 1.7% in 2022.
Simultaneously, Kenya experienced an average inflation rate of 7.7% in 2023, resulting in a loss for the average saver. Notably, this marks the second consecutive year that pension returns fell below the inflation rate, following the 7.6% inflation rate recorded in 2022.
Zamara attributed the underwhelming returns to a weak equities market performance and fair value losses on bonds due to a notable increase in yields, leading to price decreases in the secondary market.
The survey conducted by Zamara noted that out of 412 funds with a total fund value of KES 1.0 trillion, equity allocation decreased by 9.4 percentage points to 12.4% in 2023 from 21.8% in 2022.
Consequently, fixed income and offshore investments saw their total allocation rise to 80.3% and 5.5% respectively, compared to 76.5% and 1.5% in 2022.
Among the asset classes, offshore investments yielded the highest returns with an average of 58.3%, while fixed income investments recorded an average return of 6.3%. Conversely, equity investments posted a weighted average return of (22.9%), indicating poor performance in the equity market.
Pension funds typically invest in large companies listed on the Nairobi Securities Exchange (NSE) to ensure security for savers’ funds and generate steady returns from dividends. In the fixed income market, they prioritize low-risk, long-term government bonds to ensure fund stability. While offshore investments offer high returns, they also carry high risk.
