State-run pension scheme, the National Social Security Fund (NSSF), has doubled the interest payable on retirement savings for the year ended June 2016 despite reporting a drop in net investment income.
The fund has declared a six per cent investment return up from the three per cent it paid on savings the previous year even as net investment income dipped by Sh9.7 billion in the year ended June 30, 2016.
The payouts are expected to be credited to beneficiaries’ accounts following publication of the higher yields in a gazette notice last week.
“The board of trustees approved an interest of six per cent based on actuarial valuation of the fund by Alexander Forbes, Financial Services Ltd,” NSSF said.
The payment comes as the government steps up its drive to have more Kenyans secure their financial health in old age with retirement savings.
The higher NSSF payout came as workers’ contributions to the fund surged by Sh1.2 billion or 9.3 per cent to Sh12.9 billion last year and expenses declined Sh600 million to Sh5.5 billion.
This means that NSSF was left with Sh7.4 billion to invest on behalf of pension savers in 2016, up from Sh5.6 billion a year earlier.
The scheme’s net income, however, fell Sh9.7 billion or 9.1 per cent in the review period to Sh1 billion.
“The decrease was mainly caused by a decline in fair value loss in net investment income from valuation of quoted stocks at the Nairobi Securities Exchange (NSE),” the NSSF said.
The six per cent return to savers was, however, just a few points short of annual inflation rate of 5.8 per cent in June 2016, meaning real average earnings were a paltry 0.2 per cent.
The NSSF, which recently converted to a public pension scheme, is obliged to make monthly payments to retirees unlike previously when it paid a measly lump sum on retirement.
Treasury bonds top the list of asset classes that NSSF has invested in to generate returns for its members.
The fund raised its appetite for the bonds investing Sh52.7 billion last year, a 37 per cent growth from Sh38.3 billion in 2015.
NSSF net assets grew four per cent in the period to Sh172.1 billion, from Sh165.6 billion the year earlier.
Retirement funds, including private ones, hold about Sh1 trillion in assets, according to data from Zamara, formerly Alexander Forbes.
The industry has 19 licensed fund (asset) managers, 11 custodians and 30 administrators.
NSSF’s six per cent yield however trails that of the industry average that stood at 13.8 per cent against an inflation rate of 9.2 per cent, according to Zamara Consulting Actuaries Survey.
The majority of senior citizens have been suffering in old age without financial fall back plans, prompting the State to intervene.
Kenya’s national government has set aside Sh6.5 billion to give those above 70 years a monthly pay and free medical cover, irrespective of their income level.
The previous cash transfer project initiated in 2012 targeted individuals above 65 years living in extreme poverty.
The pension burden has, however, over the years been shouldered by private sector workers.
Officials have attempted more than thrice since 2009 to roll out a contributory pension scheme for government workers to make them start contributing for their upkeep in retirement and reduce taxpayers’ exposure to the burden.
It’s yet to take effect eights year on.
Under the scheme, civil servants contribute two per cent of their monthly pay to the retirement scheme in the first year, five per cent in the second and 7.5 per cent from the third year onwards.
Their employer, the government, is expected to match the monthly contributions with another 15 per cent of the contributor’s salary.
Besides, the government is to buy and maintain a life insurance policy worth a minimum of five times the member’s annual pensionable emoluments.
The retirement age for civil servants rose to 60 years from 55 years in 2009 as the government sought to re-organise its finances. It is estimated that about 20,000 civil servants retire each year.
A public service report released this year showed that 35 per cent of civil servants are set to retire in the next decade.
The huge number of civil servants nearing retirement age means the Treasury will have to set aside billions of shillings as pension costs for exiting workers who do not contribute for their pensions.
Private sector workers pay towards civil servants’ pension bill, with economists punching holes in the arrangement, citing the need for civil servants to start contributing monthly for their nest egg.