Equities and investment property accounts for 71% of self-administered funds’ assets

Equities and investment property accounts for 71% of self-administered funds’ assets

Staff reporter

EQUITIES investments and investment property at $4.06 billion accounted for 71,59% of the total asset base for Self-Administered Funds for the year ended December 31, 2019.

The Insurance and Pensions Commission (Ipec), in its quarterly (Q4) pensions report said the quantum of investment in these two asset classes reflects the need by funds to preserve value for members.

There were 170 self-administered funds as at 31 December 2019, compared to 169 reported as at 30 September 2019.

The report noted that the sector’s asset base increased by 31.11% in nominal terms from $4.33 billon as at 30 September 2019, to $5.67 billion as at 31 December 2019.

“The increase was mainly driven by 35.01% and 10.79% increase in the values of investment property and equities respectively as a result of the revaluation of the two asset classes.”

The sector’s assets contributed 34.56% of the pension industry’s $16.41 billion asset base and translated to an average capital accumulation per member of $46,624 as at 31 December as compared to $35,932 reported as at 30 September 2019.

Investments in prescribed assets increased from $408.28 million as at 30 September 2019 to $496.05 million as at 31 December 2019. The prescribed assets investments translated to a ratio of 8.75% of total assets compared to 9.44 reported as at 30 September 2019. The ratio was below the revised minimum regulatory threshold of 20%.

The report shows that self-administered funds reported a financial surplus of $2.68 billion for the 12 months ended 31 December 2019, reflecting a nominal increase of 527.16% from $427.80 million for the same period in 2018.

“The comparative increase was on account of higher total income of $2.93 billion for the period under review compared to $538.5 million in 2018.”

The total income of $2.93 billion was mainly driven by fair value gains totaling $2.09 billion which were a result of increases in property and equity valuations.

Total expenditure was $249.01 million for the 12 months ended 31 December 2019, increasing from $110.69 million reported for the same period in 2018.

The comparative increase was driven by a 120.88% increase in the amount of benefits paid from $81.55 million in 2018 to $180.13 million in 2019.

Administrative expenses totalled $183.30 million for the period under review, compared to $82.65 million for the comparative period in 2018.

“The $183.30 million was mainly driven by administration, investment, staff and property maintenance expenses amounting to $129.50 million. The expenses resulted in average expense ratios of 27.28% and 1.97% to total contributions and total income respectively, compared to 21.80% and 5.17% in 2018,” said the report.

Ipec noted that the increase in the administrative expenses to contributions ratio to 27.28% has been exacerbated by the number of inactive funds, which accounted for 31.55% of the total number of funds in the industry and were not accruing contributions during the period under review.

The ratio should not be used in isolation from the expenses to total income ratio.