Entrepreneur's Corner

A 7% Return Difference Between The Best And Worst Performing Pension Fund In Kenya: Why Research Is Key

BY Steve Biko Wafula · December 30, 2024 08:12 am

KEY POINTS

The diversity in returns over the years highlights another crucial point: the economic environment significantly impacts fund performance. For instance, the dip in 2017, where the average across funds was just 7.6%, underscores the need for a fund with strong risk management practices. Jubilee's ability to weather such downturns and maintain a strong average is a testament to its robust strategy.

KEY TAKEAWAYS

Investors must also consider the reputation of fund managers. Experienced managers with a proven track record, like those steering Jubilee, provide an added layer of confidence. In contrast, newer players may lack the expertise needed to navigate complex financial landscapes.

In a world where financial security during retirement is paramount, choosing a pension fund can be the difference between a comfortable retirement and a struggle to make ends meet. The 11 years of average returns from Kenya’s top 15 pension funds reveal stark differences, underscoring why research is not just advisable but critical before investing.

Analyzing the fund, Kennindia leads with a solid 12.2% average return, while Liberty Life languishes at the bottom with an average of 7.3%. This 7% difference might seem small, but over a decade or more, it compounds into millions of shillings lost or gained. For instance, a Ksh 1 million investment growing at 12.2% annually yields approximately Ksh 3.2 million in 10 years, compared to just Ksh 2 million at 7.3%. That’s a staggering Ksh 1.2 million difference.

Pension

The graph above vividly illustrates the stark differences in the 11-year average returns of Kenya’s top 15 pension funds. Kennindia leads the pack with a 12.2% return (highlighted in green), while Liberty Life lags at the bottom with a 7.3% return (highlighted in red). Jubilee’s consistent and stable performance at 10.2% (highlighted in blue) positions it as a reliable option for those prioritizing stability, superior customer service, and emergency fund accessibility.

This visual representation underscores the importance of research and informed decision-making when choosing a pension fund to maximize long-term gains.

It’s not just about returns, though. The performance of a fund like GA Life, which has maintained an impressive average of 11%, highlights consistency. This consistency becomes vital, especially during economically volatile periods, where lesser-performing funds might fail to shield investors.

The entry of newer players like Equity Life, Prudential Life, and Kenya Orient shakes the traditional hierarchy. While their average returns of 11%, 10.8%, and 10.8% respectively are commendable, their shorter track records mean investors must tread carefully. Short-term performance does not always predict long-term stability.

Regulation by the Retirement Benefits Authority (RBA) provides a level of assurance, but not all regulated funds are created equal. For example, while CIC Life averages 9.5%, it pales in comparison to Jubilee, which posts a consistent 10.2%. Jubilee’s performance over 11 years is a testament to its resilience and sound management.

When considering a pension fund, returns are only part of the equation. High fees can erode even the most impressive returns. A fund averaging 10% but charging 2% annually in fees leaves an effective return of just 8%. Transparency around fees, as seen in funds like Jubilee, is critical for making informed decisions.

Emergencies don’t wait for retirement, and flexibility in accessing funds is a key consideration. Jubilee Money Market Fund (MMF) stands out here. Unlike traditional pension funds, Jubilee MMF offers liquidity, allowing investors to access their funds within 24 hours during emergencies. This ease of access can be lifesaving, setting Jubilee apart from its peers.

Customer service also plays a significant role. Jubilee has built a reputation for exemplary customer support, ensuring that investors can navigate their financial journeys smoothly. In contrast, funds with poor service can leave investors feeling stranded during critical moments.

The diversity in returns over the years highlights another crucial point: the economic environment significantly impacts fund performance. For instance, the dip in 2017, where the average across funds was just 7.6%, underscores the need for a fund with strong risk management practices. Jubilee’s ability to weather such downturns and maintain a strong average is a testament to its robust strategy.

While funds like Kenya Alliance and Britam offer average returns of 9.8% and 9.5% respectively, they lack the liquidity and customer-centric approach that Jubilee brings to the table. In today’s fast-paced world, these features are non-negotiable.

The importance of diversification cannot be overstated. Relying solely on pension returns is risky, especially in an economy like Kenya’s, where inflation often outpaces interest rates. Combining a pension fund like Jubilee with other investment vehicles ensures a balanced financial portfolio.

Therefore the 11 years of data underscore the need for due diligence before committing to a pension fund. The 7% difference in returns between the best and worst performers is a glaring reminder of the potential losses for uninformed investors. Jubilee MMF emerges as a leader, not just for its consistent returns but for its unparalleled stability, customer service, and accessibility. If securing your financial future is a priority, Jubilee should be at the top of your list.

About Steve Biko Wafula

Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters. He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com