Market jerk slows pensions income

Post was last updated: March 5, 2019

By Taonga Sabola:

A bearish performance of the stock market in the fourth quarter of 2018 slowed down the growth of pension investment income, the 2018 Financial Stability Report by the Reserve Bank of Malawi (RBM) has shown.

While fund managers realised K80.8 billion in investment income in the first half of 2018, negative returns on the stock market resulted in investment income shrinking to K51.5 billion in the second half.

According to the Financial Stability Report, some pension funds had their funds heavily invested in listed equities, hence were exposed to volatility in stock prices.

“As such, drop in prices of listed equities, as it turned out in the last quarter of 2018, negatively affected the growth of the sector,” reads the report in part.

Despite the jerk, pension investment earnings for the whole of 2018 at K32.3 billion were still better than the K122.7 billion realised in 2017.

RBM says the pension sector remained sound as assets continued to grow on the back of steady flow in pension contributions and growth in investment income.

“Asset growth was rated satisfactory as total assets for the sector increased by 13.1 percent to K716.5 billion in December 2018, buoyed by contributions and investment income.

“The increase was also as a result of remittance of pension arrears, during the review period, which accounted for K10.1 billion as at end of December 2018,” reads the report in part.

It says pension assets remained satisfactory as total investments assets increased by 13.4 percent to K692.9 billion in December 2018.

Investment in listed equities continued to dominate the asset portfolio mix at 39.5 percent of investments, which marginally increased from 39 percent registered in June 2018.

Asset allocation in government securities remained constant at 34.2 percent.

Meanwhile, there was notable increase in unlisted equity during the period under review.

The increase was mainly attributed to the shift in underlying assets from property to unlisted equity, following establishment of property development company.

Other investments—which included private debt, fixed deposits and property—were at 5.3 percent, 8.1 percent and 3.9 percent, respectively.

RBM says counterparty default remained one of the key risks to the sector owing to accumulation of pension contribution arrears.

“In addition, pension savings are long-term in nature; however, the increased investments in short-term government securities created mismatches that need to be closely monitored,” RBM says.

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