Determinants of the growth of individual pension schemes in Kenya

Abstract

Individual pension schemes are the principal sources of retirement income for millions of people in Kenya. Pension schemes are also important contributors to the gross domestic product (GDP) of countries. This study focuses on pension funds in Kenya. Retirement income accounts for 68% of the total income of retirees in Kenya, while pension assets account for 30% of Kenya’s GDP. It is therefore important that pension schemes be managed effectively to ensure their growth. The general objective of the study was to investigate the factors influencing the growth of individual pension schemes in Kenya. More specifically, the study explored the effect of fund governance, regulations, investment strategy and fund ethics on the growth of pension schemes. The study adopted the descriptive research design. The target population for this study comprised of 22 individual pension schemes in Kenya (RBA Directory, 2012) out of which all are privately owned and compete for customers in the market. Then statistical package for social sciences (SPSS) Version 17.0 was used for the purpose of data analysis. The findings of the study revealed that fund governance exert a significant relationship on the growth of the pension schemes. This means that pension fund governance lead to improved growth of the individual pension schemes. The result further shows that reducing the benefits processing period, providing relevant education to the trustees, maintaining an appropriate internal control system, communicating regularly with members, defining the roles of the trustees clearly, regulating the fees charged by the service providers, controlling default risk on the part of the sponsor and implementing investment strategies that are major factors that influence the growth of individual pension schemes in Kenya. Fund regulation was also found to exert a significant relationship on the growth of individual pension schemes. This implies that the implementation of the following regulations improve the performance of individual pension schemes: monitoring of performance of the service providers; regulation of compliance costs; limiting the size of the pension fund board; conducting regulatory meetings; the separation of fund ownership from the sponsor’s business; and the investment policy.