Nairobi, Kenya – April 7, 2025 – Kenya’s pension industry has demonstrated remarkable growth, with total Assets Under Management (AUM) reaching a substantial Ksh. 2,255.3 billion by the end of December 2024. This represents a significant increase of Ksh. 276.5 billion, or 14% growth, compared to the Ksh. 1,978.8 billion reported in June 2024. Download the Industry Report.
This impressive expansion was primarily fueled by robust investment income and increased member contributions. A key driver for the contribution growth was the ongoing implementation of the National Social Security Fund (NSSF) Act of 2013. The second phase of this implementation saw the lower contribution limit rise from Kshs. 6,000 to 7,000 and the upper limit jump from Kshs. 18,000 to 36,000, significantly boosting overall contributions.
Furthermore, the favorable investment income generated during the latter half of 2024 can be attributed to a stable macroeconomic environment. Key indicators remained steady, with inflation declining, the exchange rate stabilizing, and interest rates continuing their downward trajectory. This stability provided a conducive environment for pension funds to generate positive returns.
Traditional Assets Still Dominate, But Alternatives Gain Traction
A significant portion, 92%, of pension assets remained concentrated in four key asset classes: government securities, guaranteed funds, quoted equities, and immovable property. These traditional investment avenues have long been favored for their perceived stability and predictable returns, constituting 94.82% of total pension assets across the six primary investment categories.
However, the latter half of 2024 witnessed interesting shifts within these traditional asset classes:
- Government securities saw a substantial 46% increase in investment, likely driven by attractive interest rates.
- Quoted equities also experienced significant growth of 42%, supported by a market rebound, particularly in the final quarter of the year.
- Guaranteed funds recorded a healthy growth of 22%.
- Conversely, investments in immovable property and fixed deposits both contracted by 25%, suggesting a move towards more liquid assets and direct investment in potentially higher-yielding government securities.
- Cash holdings also saw a significant 33% decline as schemes actively sought more lucrative investment opportunities.
Interestingly, alternative asset classes are increasingly gaining attention as avenues for diversification. While uptake has been historically slow due to perceived uncertainties, the past year saw notable growth in several areas:
- Unquoted equities, commercial paper and non-listed bonds, and other alternative assets all recorded impressive growth exceeding 100%.
- Private equity investments grew by a significant 67%.
- Offshore investments also saw a substantial increase of 32%, likely benefiting from the stable Kenyan Shilling against the US Dollar in the latter half of the year.
However, Real Estate Investment Trusts (REITs) experienced a 7% decline, highlighting the need for further market development and liquidity to attract more pension fund investment in this asset class.
Impact of Macroeconomic Factors
The report underscores the direct impact of key macroeconomic indicators on pension fund performance. The stable exchange rate in the second half of 2024 positively influenced returns from offshore investments. The decrease in both the Central Bank of Kenya (CBK) rate (from 13% to 11.25%) and the average yield on the 91-day Treasury bill (from 16.23% to 14.32%) impacted earnings from government securities and fixed deposits. The rebound in the stock market, as indicated by capital market performance indicators, significantly contributed to the growth in quoted equities.
Key Players and Concentration
The regulatory landscape also saw positive developments. The number of fund managers submitting returns to the Retirement Benefits Authority (RBA) increased to 21 by December 2024, with their collective AUM growing by 16% to Ksh. 1,714.80 billion. However, the top 5 fund managers continue to control a significant 91.9% of the total assets under management. Similarly, while the number of approved issuers remained at 18, their AUM grew by 8% to Ksh. 437.51 billion, with the top 5 holding 85.08% of all guaranteed funds.
NSSF’s Strong Performance
The National Social Security Fund (NSSF) also demonstrated strong growth, with total net assets reaching Kshs. 476.8 billion by the end of December 2024, a Kshs. 74.8 billion increase from June 2024. A significant portion (67%) of NSSF’s assets is invested in government securities, followed by listed shares (14.28%) and immovable property (7.43%). The increase in NSSF contributions is directly linked to the ongoing implementation of the NSSF Act of 2013.
Post-Retirement Medical Funds (PRMFs) on the Rise Contributions to Post-Retirement Medical Funds (PRMFs) have seen a sharp increase since September 2024. This surge is primarily attributed to increased contributions from state agencies and other government-linked institutions, following Treasury Circular No. 9 / 2024.
Positive Future Outlook
The outlook for the Kenyan pension industry remains positive. Retirement benefits assets are expected to continue their growth trajectory in the first half of 2025, driven by sustained member contributions, particularly with the ongoing increase in NSSF contributions. Furthermore, anticipated investment income from fixed-income investments and the continued rebound of the stock market are expected to further fuel this expansion.
Overall, the Kenyan pension industry’s strong performance in the latter half of 2024 underscores its resilience and potential for continued growth, playing a crucial role in securing the financial future of Kenyans.
Download: RBA Industry Brief as at December 2024
