Workers in East Africa can expect higher retirement earnings in coming years, as regional public pension managers roll out new ways to raise funds, diversify their income streams and streamline their operations.

However, data shows pension managers risk falling behind demand for pension payments in the wake of a rising number of retirees and falling returns on investments.

The public pension managers in Kenya, Uganda, Tanzania and Rwanda have lined up several mega investments, which could see the agencies become the single biggest investors in real estate and stock markets.

This is driven by the realisation that the region faces extreme levels of old age poverty in the next 20 years as the number of people aged 60 and above doubles with no corresponding increase in pension coverage.

This, together with faltering youth employment and shrinking formal sector jobs, presents a recipe for social upheaval as the elderly look up to a helpless younger generation for support.

Last week, Rwanda’s National Social Security Board (RSSB) said it would embark on the construction of a modern housing estate in Kigali later this year that is expected to strengthen the pension manager’s financial muscle.

In Kenya, the National Social Security Fund plans to transform itself into a pension fund, a shift that will see higher income earners contribute more for their retirement plans.

Data from the United Nations Department of Economic and Social Affairs, for example, show that in the next 20 years, the number of Kenyans aged 60 and above will rise from 1.8 million currently to nearly 4 million, worsening the pension crisis.

The trend is expected to be reflected in other EAC countries.

In Tanzania, formal social security institutions cover about six per cent of the population.

In Uganda, this is estimated at seven per cent. Kenya fares slightly better at 15 per cent.

In Rwanda, over 90 per cent of the population is not covered as the existing schemes cover only those in formal employment.

By the end of 2009, the total number of active members in the country’s public fund was about 300,000.

Depressed activity in stock markets — where the funds have invested a big chunk of their money — across the region has thinned out workers’ contributions, forcing the agencies to seek new investment schemes.

Kenya’s Retirement Benefits Authority latest industry figures show all asset categories, where fund managers had invested, exhibited a positive growth, except quoted equities, fixed income and cash, which declined by 5.5 per cent, 7.6 per cent and 26 per cent respectively over the first six months to June 2011.

Kenya’s NSSF is preparing to build over 30,000 residential houses as it pursues reforms to sign up workers in the informal sector to broaden its contribution base.

(READ: Tanzania NSSF to float shares to raise funds)

“We would like a joint venture with international bodies, who are willing to invest in Kenya,” said Tom Odongo, the acting managing trustee.

The reforms are contained in the National Social Security Pension Trust Bill, 2012, which will see the NSSF convert into a National Social Security Pension Trust Fund.

Two weeks ago, Tanzania’s NSSF announced plans to inject funds into key infrastructure projects as it seeks to raise funds to meet growing pension obligations.

The firm has also embarked on constructing a $40 million commercial building in Nairobi.

With the fraction of the region’s population covered by pension schemes growing gradually, slower than the number of people in need of retirement benefits, analysts said the ranks of the aged joining the poverty bracket could swell further.

“Traditionally, pension schemes have invested more in the stock market but like we saw last year, the stocks market also has its own risks and as such pension schemes are diversifying into real estate to guarantee themselves a predictable return,” said Amos Koech, a fund manager at Apollo Assets.

Real estate and infrastructure are attractive to the pension funds because they are generating higher returns with fresh industry estimates showing real estate will have a 30 per cent return in 2012.

This is lucrative compared with other investment vehicles such as publicly listed shares, whose prices are remain depressed in Nairobi, Dar es Salaam, Kampala and Kigali bourses.

“Most of these pension schemes own prime land. Developing them would help unlock their true value hence ensure they reap maximum returns,” Einstein Kihanda, a fund manager at ICEA Lion Group said.

Rwanda’s RSSB’s total investment portfolio stands at $480 million.

It paid out about $16 million to pensioners last year but expects the payout to increase sharply in the coming years in the wake of a rise in the number of retirees.

The search for funds is increasingly giving the public pension managers clout in the corporate and investment circles in EAC, seen in several big buy-ins into big listed companies in the region as is the case with Kenya’s NSSF, which currently holds big stakes in National Bank of Kenya and East African Portland Cement.

“This is modern thinking for a fund like NSSF Tanzania, which needs to grow its income sustainability,” said Daniel Mghwira, an analyst at Miradi Associates in Tanzania.

Kenya’s NSSF has about three million registered members with only about 1.2 million as active contributors.

RSSB said it will undertake a multi-million dollar housing project dubbed “Vision City” in Gaculiro, a Kigali suburb that will include luxurious houses and detached units for medium and low income earners.

The project will be financed through a partnership with a private investor, who is yet to be identified.

“The first phase which will begin this year is likely to cost $150 million.

We are now looking for a solid investor (contractor) that will construct the houses,” said Afrique Ramba, the deputy director general of RSSB.

By Emmanuel Were, Berna Namata, Peterson Thiong’o and Christine Mungai.