PENSION funds that invested at the Nairobi Securities Exchange may have suffered the first loss in four years last year because of high exposure to the poorly-performing stock market, a financial and risk management services firm said yesterday.
Alexander Forbes, which conducts quarterly surveys on the close to Sh900-billion industry, said the performance of pension funds in 2015 comes close to that witnessed in the aftermath of the post-election violence and global financial crisis of 2008 and a troubled economy in 2011.
Chief executive Sundeep Raichura called on pension funds to diversify their portfolio if they expect returns of more than 15 per cent this year, adding the bumpy ride in 2015 was not likely to signficantly smoothen this year.
“If I look at the outlook for 2016 with an upcoming election (August next year) and continued uncertainty we are seeing in the global markets, we are not forecasting the same level of returns as prevailed in 2012, 2013 and 2014,” Raichura said. “But investing in pension is a long term (venture). You will have one or two years or more where there is volatility but the focus should be on getting a return that beats inflation over the long-term.”
Performance of the pension funds largely mirrors that of the Nairobi Securities Exchange, which lost about 21 per cent last year on high interest rates and a 12. 92 per cent depreciation of the shilling against the US dollar.
In 2014, for example, average pension return eased to 15.5 per cent from 21.4 per cent in 2013, according to Forbes survey, reflecting the slowdown in the NSE's All Share Index to 19.2 per cent from 44.05 per cent in the respective years.
“Based on the surveys that we carry out, most pension funds will probably post a negative return but the figures are still being determined,” Raichura said. “Last year was a difficult for both the equity and bond markets because the NSE had a down-turn.”
He spoke after the firm, which administers about 260 pension schemes with 140,000 members, unveiled an innovative pension plan for a post-retirement medical cover – the first of its kind in the country.
The scheme will be self-regulated because the Retirement Benefits Act and Insurance Act do not have provisions for employee savings for medical insurance scheme after employment.
“We have said to both regulators (Retirement Benefits Authority and Insurance Regulatory Authority) that we will subject ourselves to regulations … because the way it is structured is identical to any pension scheme,” Raichura said. “We will have a board of trustees, a trust fund, a fund manager to invest the money, a custodian to hold the money and as Alexander Forbes, we will provide administrative and advisory framework.”
The scheme dubbed Ngao Milele will target a return of 2.5 per cent above inflation, which is lower than the three and four per cent target for other schemes because payments are “likely to made earlier”.