Pensioners face tough times as Corona hits investments

Wednesday, May 6th, 2020 00:00 |
Nairobi Securities Exchange. Photo/PD/FILE

Seth Onyango @SethManex

Kenyan pensioners are nursing financial wounds as the crippling Covid-19 pandemic wipes out billions of their investment on various portfolios.

Assets invested in quoted securities, constituting 17 per cent of the total volumes in pension schemes are expected to shed billions as the virus devastates the financial market.

As of December, last year, pensioners’ investment in the stocks market made up Sh210 billion of the of the total pool of assets which stood at Sh1.3 trillion.

But given the current stock market rout on the back of Covid-19, experts warn that a significant portion of that will evaporate, meaning more losses for savers.

However, the value of the government bond portion has actually gone up during the pandemic.

Retirement Benefits Authority (RBA) chief executive officer Nzomo Mutuku anticipated more bloodletting in the sector before things stabilise.

“The stocks market has gone down significantly…between February and now we seeing a lot of volatility.

This has directly wiped out value from pension scheme. It is on paper but all the same is a loss that we have recorded,” he said during a Zoom meeting on the effect of Covid-19 on the pension industry in Africa.

Since the coronavirus outbreak, stock markets have fallen considerably and are likely to remain volatile for well into 2021.

Pension schemes have also recorded losses in the real estate sector as more Kenyans are unable to foot their rent bills.

Of the total investment in diversified portfolios, 42 per cent was channelled in treasury bonds, 17 per cent in the stock market and 18 per cent in real estate.

Another 15 per cent was invested in insurance companies, 3 per cent in fixed bank deposit, 1.5 per cent in private bonds, 1 per cent in cash and 0.5 per cent in offshore investment.

Unpaid leave

An additional 0.28 was invested in unquoted equity, 0.07 in private equity while 0.04 in state investment trust.

Mutuku said that some employers have suspended contributions to the pension scheme altogether ― with the law allows firms to halt remittances subject to giving notice.

“Some employers have also sent their staff on unpaid leave, thus affecting their contributions to pension schemes.

It means less money is going into the scheme. People on half salary are also remitting less cash to the pension fund,” he said.

Most hospitals have also applied to the Retirement Benefits Authority (RBA) to suspend remittances to the pension scheme due depleting income as most Kenyans keep away from hospitals.

The growth of the retirement benefits sector was projected to drop in the first half of 2020 on the back of the effect of coronavirus of the financial markets.

RBA’s outlook showed the virus will have a dampening effect for employers and trustees of defined benefit pension schemes.

“The growth in the retirement benefits sector is projected to drop in the first half of 2020 given the effects of the Coronavirus which has in the shortest time negatively impacted the financial markets and is postulated to significantly affect the global economy,” reads the outlook report in part.

  Holders of final salary-style pensions, mostly in the public sector will lose nothing as their payouts are guaranteed.

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