Pension fund assets in Kenya witnessed a robust increase of KES 127 billion during the first half of 2023. This remarkable growth was propelled by several key factors, including the implementation of higher mandatory contributions to the National Social Security Fund (NSSF) and favorable exchange rate gains on offshore investments.
According to data provided by the Retirement Benefits Authority (RBA), the total assets under management in pension funds swelled by 8.1 percent, reaching an impressive KES 1.704 trillion. This remarkable expansion can be attributed to various contributing factors, with notable mentions being the infusion of fresh capital into Real Estate Investment Trusts (REITs). Among these investments, the KES 6.92 billion Laptrust Imara Investment REIT (I-REIT) took center stage after its listing on the Nairobi Securities Exchange (NSE) in March.
Government securities and fixed deposits, two prominent asset classes, also experienced substantial increases in value during this period. This boost was partially fueled by a strategic reallocation of funds from listed equities, which continued to face challenges in the market.
This robust growth in assets starkly contrasts with the previous year, as the first half of 2022 saw a 2.1 percent contraction, resulting in a total asset value of KES 1.515 trillion. The contraction in 2022 was primarily attributed to fair value losses incurred in property, equities, and government bonds.
The RBA attributed the recent surge in assets to the implementation of enhanced contributions to the mandatory NSSF scheme, which commenced earnestly in February 2023 following a pivotal Court of Appeal ruling. Additionally, the improved performance of offshore assets benefited from favorable exchange rate fluctuations.
The RBA commented on the investment landscape, stating, “The schemes continued to invest heavily in government securities which accounted for 47.79 percent of the total assets under management. This was followed by guaranteed funds which accounted for 19.19 percent.”
Following the implementation of enhanced contributions to the NSSF, the total investments held by the State-owned fund skyrocketed by KES 12.61 billion, reaching KES 308.26 billion by June. Out of this asset base, the NSSF manages KES 46.6 billion internally, while the remaining KES 261.65 billion is overseen by six private fund managers, with the largest portion being held by Gen Africa Asset Managers at KES 58.9 billion.
The NSSF Act of 2013, whose implementation began in March 2023, significantly raised the monthly deductions for salaried employees. For the lowest earners, monthly deductions increased from KES 200 to KES 600, while top earners witnessed an increase from KES 320 to KES 1,080 under a graduated scale. These upper limits on contributions are set to rise annually.
An NSSF strategy document revealed that these enhanced contributions led to a threefold increase in the fund’s monthly collections, which previously stood at KES 1.3 billion. If the fund sustains a monthly collection of approximately KES 4 billion from its registered members, it can anticipate an annual addition of KES 48 billion to its formidable investment war chest. This promising trajectory heralds positive prospects for the NSSF and its contributors in the years ahead.
Photo Source: All Africa
7th October, 2023
Delino Gayweh
Serrari Financial Analyst
