Retirement benefits sector to be hit hard as Corona surges
The growth of the retirement benefits sector is projected to drop in the first half of this year on the back of the debilitating effects of coronavirus disease (Covid-19) on the financial markets.
Latest data from Retirement Benefits Authority (RBA) shows the pandemic will have a dampening effect on 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 due to Coronavirus which has in the shortest time negatively impacted financial markets and predicted to significantly affect the global economy,” a report from regulatory body says in part.
Public sector
Holders of final salary-style pensions, mostly in the public sector will lose nothing since their payouts are guaranteed.
However, further falls in the market will mean these schemes will drop further into deficit, requiring private sector employees to somehow find the cash to top them up.
But the RBA report projects the schemes to continue investing in alternative assets on the back of broadening allowable investment categories and take advantage of public infrastructural projects under the big four agenda.
And as layoffs spike, evidence suggest the pension industry will suffer as employers contribute less to staffs’ pension kitty.
Those with retirement savings or employed by the government are, however, not likely to be affected due to State guarantees.
According to the RBA report, the overall retirement benefits assets under management surged 4.2 per cent from Sh1. 2 billion in June 2019 to Sh1.3 billion in December, compared to the same period in 2018, where the assets grew by 11.29 per cent, up from Sh1.1 billion.
The growth in the assets is attributed to the relative stability in the stock market during the period. Fund managers and approved issuers held majority of the assets amounting to Sh1 billion.
External managers
Assets under management included Sh191 billion of National Social Security Fund (NSSF) funds, which were managed by four external managers.
At the same time, NSSF internally administered Sh57 billion of investments, while trustees of the various schemes directly managed Sh67.18 billion of property investments.
It includes property amounting to Sh43 billion, quoted equities Sh9.15 billion, fixed deposits Sh768 million, cash and demand deposits Sh3.18 billion and unlisted shares of Sh331 million.
Internally managed property is investments in Property not reported by Fund Managers. Data of the internally managed property was extracted from the schemes Financial Accounts for 2018.
The decrease in the internally managed property can be attributed to the directive issued by the authority requiring schemes to relinquish the investment of scheme funds to fund managers.
At the same time, assets managed internally by NSSF dropped by Sh30.9 billion from Sh88.02 billion in June 2019.
