Pension returns fell below the rate of inflation in the year to March mainly driven by poor stock returns, effectively eroding the gains of savers in retirement schemes for the period.
A pension industry survey for the first quarter of the year done by Alexander Forbes Financial Services shows the average return by pension schemes for the 12 month period stood at 7.8 per cent while the rate of inflation at the end of March was 10.3 per cent.
The cost of living shot up in the last three months driven by higher cost of food following a prolonged drought.
“The survey indicates the median scheme did not always outperform overall inflation over the one year period. Over one year, median returns underperformed inflation in 2009, 2012, 2016 and 2017,” said Alexander Forbes in the survey, which covered 379 schemes with a total of Sh582.5 billion of assets under management.
Returns for pension schemes were negatively affected by equities, which over the period gave a return of -11.3 per cent.
At the same time, fixed income investments had a return of 14.7 per cent and offshore investments 13.9 per cent, meaning that a positive return from equities would have seen the sector outperform inflation.
The performance of the sector has, however, improved when compared to the one-year period to March 2016, when the average return stood at 1.7 per cent.
As a result of the low returns from equities since the second quarter of 2015, the pension schemes have continued to move investments to fixed income and property at the expense of equities.
By the end of March, the average scheme had 75 per cent of its assets in fixed income, compared to 71.2 per cent a year ago, 19.1 per cent in equities compared to 24.7 per cent a year ago and 4.7 per cent in property up from three per cent in 2016.
“The average scheme’s exposure to equities continues to decline, though slightly in this quarter, on the back of poor equity performance whilst property allocation grows,” said Alexander Forbes.
Credit: Business Daily