RBA, bourse tussle over Sh2.3tr pension assets investments

A proposal by the Nairobi Securities Exchange (NSE) to have the pension regulator revise the allocation formula of assets under management in favour of equities has been termed impractical by the Retirement Benefits Authority (RBA).

The proposal seeks to amend the current allocation formula, which provides the maximum a scheme can invest in a regulated financial instrument, by introducing a floor or a minimum.

NSE Chief Executive Frank Mwiti says the move will deepen the capital markets, probably taking advantage of the boon that saw market capitalisation cross the Sh3 trillion mark in November 2025, amid reducing yields from government paper.

However, RBA Director in charge of Research Lazarus Keizi argues that introducing a floor would have pensioners’ money sitting idle in some stocks that are non-performing.

While Mwiti is eyeing the now Sh2.8 trillion pension assets under management, which are largely invested in government paper, to boost NSE’s performance, RBA seeks to protect and preserve the steady growth of this sector.

Mwiti, during a session with Kenya Private Sector Alliance (Kepsa), noted that this proposal had been presented before but received pushback.

“We had suggested that instead of having a maximum or a cap, we can have a floor where we can say 10 per cent of pension funds be invested in such and such instruments,” he said. “However, working with Kepsa, hopefully in 2026, we can revive these ideas, curate them and push them so that we have policy direction.”

Mwiti said changes in policy spearheaded by the government in recent times had boosted NSE's performance. These changes include a reduction of the base lending rate by the Central Bank of Kenya (CBK) to a single digit from a high of 13 per cent a year ago.

The current CBR stands at 8.75 per cent after a further reduction was implemented in February this year.

“The government has worked hard to push these rates down. There is a policy directive to move this number to a single digit and keep it there,” he said. “That means that people re-allocated from government paper to equities and that contributed to the surge.”

NSE’s push to deepen the capital markets has also seen its focus shift from the US and Europe as it scouts for global clients to the Middle East and Asia. Further, there is keen interest among Kenyans living in the diaspora and the retail segment of the market that can now not only trade single shares but also do so digitally facilitated through M-Pesa.

However, the push by NSE to get a larger slice of the Sh2.8 trillion pension assets may not be effected as RBA insists that the capital markets is not deep enough to introduce such a risk.

“Our law provides the maximums. What some players want is for us to give a floor, which is not very practical,” said Keizi.

He points out that there are some stocks in the NSE that are dormant and as such, it may not be wise to allocate money to these instruments just for the cash to sit idle. While the cash will be making money for the owners of the business, it may not be the same for the pension scheme.

“What we need to appreciate is that our market is a bit shallow. If we understand this, it is very hard to tell somebody to invest their money in the 15 asset classes, that you have to do at least so much. That might not be proper in terms of investment,” he noted.

Keizi said while there are 15 asset classes approved by the regulator, it is unfortunate that pension schemes still concentrate their investments in four namely: government paper, real estate, guaranteed funds and equities.

In the RBA guidelines, schemes can invest up to 90 per cent of their assets in government paper and up to 70 per cent for quoted equities. Guaranteed funds allow for 100 per cent while offshore assets are capped at 15 per cent.

In the latest industry brief from RBA, government securities is still the leading financial instrument used by schemes to grow their pension assets. Of the Sh2.8 trillion assets under management, Sh1.5 trillion is invested in government paper. Quoted equities, which is NSE’s playground, comes second with Sh312.8 billion.

In June 2023, assets in government paper stood at Sh814.3 billion while quoted equities was Sh174.1 billion. Then, pension assets under management stood at Sh1.7 trillion which grew to Sh2.3 trillion by December 2024.

In the half year to December 2025, the report shows quoted equities recorded significant growth of 22.60 per cent which is 54.6 per cent yearly growth.

“This increased the asset class’s portfolio share to 11.14 per cent. The growth was largely due to price rallies in key blue-chip counters, most notably Safaricom, East African Breweries Ltd (EABL), and leading tier-one banks, including Equity Group, KCB and Co-operative Bank,” says RBA in the report.

For government securities, the report shows this asset class grew by 10.25 per cent over the six months period to reach Sh1.5 trillion. Its portfolio share steadied at 52.18 per cent.

“Growth moderated compared to first half of the year as the government lowered the CBR to 9.0 per cent, exerting downward pressure on yields for new debt issues, making them less attractive to investors,” the report says.