The participation of pension funds in the market is declining

Capital markets

The participation of pension funds in the market is declining


Absa Headquarters in Westlands, Nairobi. PHOTO FILE | NMG

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Summary

  • Pension plans have cut back investment in securities on the Covid-19 disruptions, dulling the participation of local investors in the economy and causing Kenya to lose four positions in an index that ranks the attractiveness of countries’ financial markets.
  • The Absa Africa Financial Markets 2021 index shows that the reduction in pension investments has seen Kenya lose 17 points in the index which measures the capacity of local investors.
  • The country scored 24 out of 100 points, up from 41 in 2020.

Pension plans have cut back investment in securities on the Covid-19 disruptions, dulling the participation of local investors in the economy and causing Kenya to lose four positions in an index that ranks the attractiveness of countries’ financial markets.

The Absa Africa Financial Markets 2021 index shows that the reduction in pension investments has seen Kenya lose 17 points in the index which measures the capacity of local investors.

The country scored 24 out of 100 points, up from 41 in 2020.

The capacity of local investors was based on the size of pension funds – the main players in the domestic market – and their potential to stimulate market activity through investments in the securities market.

The report shows that the percentage of Kenyan pension fund assets in listed securities fell from 2020 compared to countries like Namibia, Uganda, Cameroon and Nigeria whose local market investments have jumped. .

Kenya’s declining position of retirement assets pushed the country’s overall score down to 47 from 58.

The country fell four places as Africa’s most attractive financial market to 11 from 7 in 2020.

The report also assessed progress in five other areas: market depth, access to foreign exchange, market transparency, fiscal and regulatory environment, macroeconomic opportunities, and enforceability of standard framework agreements.

The survey attributed the drop in scores to disruptions in membership dues and policy cancellations seen last year.

“The pandemic has put pressure on pension funds to help mitigate the socio-economic effects of the crisis, even as they have faced membership disruption and loss of membership,” the report said.

“The crisis has shown, however, that the size of local assets can have implications not only on the development of the capital market, but on the ability of an economy to respond to the crisis.”

Other countries have also lowered their scores – South Africa (77), Mauritius (68), Nigeria (44) and Tanzania (23), and Ghana (21) which is lower than Kenya – due to the decline in pension fund assets.

As a result, aggregate pension fund assets among the 23 African countries surveyed declined by 1.9%.

Other countries improved their scores in retirement asset positions such as Namibia (100), Zambia (18) and Uganda (16).

Pensions last year saw an increase in withdrawals and buybacks due to declining incomes and job layoffs induced by the pandemic.

Many insurers have been forced to divest from where they had invested money, such as treasury bills, to meet obligations associated with increasing demands for pension withdrawals and repurchases of government products. ‘life insurance.

Despite the growth in pension assets, insurers have retained their attraction to government securities, reducing investment in corporate bonds and shying away from equities due to a decline in valuation.

The net premium income of the retirement class was 21.65 billion shillings in the six months to June, a 17 percent increase from the 18.5 billion shillings in a similar period. last year, according to the Insurance Regulatory Authority.