Kenya Pension Funds Lose Ground on Fixed Income

(NAIROBI, KENYA) – Pension fund returns fell to 18.2 percent in the 12 months to June 2026 from 29.4 percent a year earlier. The decline came as performance of fixed income securities dipped on lower interest rates and flat bond prices.

Funds administrator Zamara says the average return from fixed income assets eased to 12 percent from 27.3 percent in the 12 months to June 2025. That resulted in the lower overall gains despite returns from equities improving to 61.2 percent from 50.3 percent.

The lower returns from bonds reflected both the decline in interest rates on new issuances and slower growth in prices of existing bonds in the secondary market. Those bonds had seen rapid appreciation in 2024 and 2025.

Rate cuts by the Central Bank of Kenya from August 2024 raised the demand for existing bonds that had been issued at high interest rates. That caused their prices in the secondary market to go up. Those holding these bonds, including pension funds, were then able to revalue their market worth upwards on their books.

Bond yields and prices at the secondary market have an inverse relationship, where a rise in one signals a decline in the other.

“The year to June 2025 rode the tail end of the CBK’s easing cycle as rates and yields fell sharply, which generated strong capital gains on government paper on top of coupon income. That tailwind happened to reverse in 2026 as inflation rose from 4.4 percent to 6.4 percent between March and June, the CBK paused its rate cuts at 8.75 percent, and yields moved back up,” said Zamara investment analyst Ken Tobiko.

“The S&P Kenya Sovereign Bond Index actually lost 0.4 percent in the second quarter of 2026 after gaining 5.7 percent in quarter one. So schemes gave back some of the capital gains that had supported last year’s numbers.”

In its survey, Zamara polled 402 schemes with total assets under management of KES 1.508 trillion. That is equal to $11.7 billion or £9.2 billion at current exchange rates.

As per latest data from the Retirement Benefits Authority, pension funds in Kenya hold 74.18 percent of their KES 2.83 trillion assets in fixed income investments. That total is equal to $21.9 billion or £17.2 billion. Fixed income investments include government securities at 52.14 percent, guaranteed funds at 18.59 percent, fixed cash deposits at 2.01 percent and corporate bonds at 0.43 percent.

Compared to bonds, equities remain a relatively small investment class in the pensions sector, despite the market enjoying a good run of high returns in the last three years.

Equities investments as a percentage of total assets under management stood at 11.13 percent as at December 2025, ahead of immovable property at 8.57 percent. The remainder was spread in smaller shares among other classes such as offshore investments, private equity, call deposits and unit trusts.

Pension funds usually maintain a conservative approach to investments. They primarily assign the bulk of their assets under management to risk free government securities.

In the equities market, they largely limit themselves to large, stable companies that provide security for pensioners’ savings while offering annual dividends.

They put in smaller amounts in riskier assets such as private equity and offshore investments, which can offer higher annual returns but are prone to volatility.

Retirement Benefits Authority regulations on investment caps support this conservative approach. Funds are allowed to place up to 90 percent of their assets under management in government bonds and Treasury bills.

They are allowed to invest up to 70 percent of funds in the equities market. Their actual allocation of just 11.13 percent indicates that they have not rushed to reallocate funds to the riskier equities despite the stock market’s recent good performance.

The investment cap for each of property, fixed deposits and Real Estate Investment Trusts stands at 30 percent. That of guaranteed funds is 100 percent, and corporate bonds at 20 percent.

Others such as private equity, unlisted commercial paper, offshore assets and unlisted equities are capped at between five and 15 percent.

With their high cap and allocations, fixed income assets have a significantly larger impact on the overall performance of the funds.

Government securities have over the last two years seen a general decline in interest rates, cutting the income earned from new issuances in the period. Treasury bills average rates dropped to a range of 8.6 to 8.8 percent in June 2026 from highs of 15 to 17 percent in mid 2024.

Bonds have also recorded lower rates on new issuances over the period. Papers issued this year are paying annual rates of between 12 and 14 percent, compared to the highs of 16 to 18 percent on bonds issued in 2024.

Similarly, the average monthly interest rate on fixed cash deposits has eased to 6.8 percent from 8.37 percent in June 2025.

Equities have meanwhile been the top performing asset class in the market. Gains on blue chip stocks helped grow investor wealth at the Nairobi Securities Exchange by 56 percent or KES 1.34 trillion in the 12 months to June 2026. That is equal to $10.4 billion or £8.1 billion.

Here is a table summarising the key figures from the pension fund returns report.