The impact of Quantitative Portfolio Ceiling on Financial Performance of Pension Schemes in Kenya: a case study Occupational Pension Schemes

Abstract

Pension funds play a key role towards economic growth and development of Kenya. A part from guaranteeing smooth flow of pension funds to the retirees, they also generate employment opportunities for thousands of Kenyans. To safeguard the retiree’s funds, the government of Kenya introduced quantitative portfolio ceiling law which became operational in the year 2001. Evidence from other countries suggest that such a law could have a negative impact on financial performance of these noble schemes. Due to limited evidence locally, the current study investigated how these portfolio ceilings impact financial performance of occupational retirement pension schemes in Kenya. Secondary data was collected for a period of 15 years, that is, 10 years before the enforcement of the restrictions, and 5 years after. Pooled ordinary least square approach was adopted to estimate results. Findings indicate that quantitative portfolio ceilings related to cash balances, fixed deposits, and government securities have a negative impact on financial performance of occupational retirement benefit schemes. The study also established that restrictions on immovable properties have a positive impact on financial performance. Furthermore, ceilings on both quoted and corporate securities have no impact on occupational retirement pension scheme’s financial performance. Following these findings, the study recommends a review of quantitative portfolio ceilings with respect to cash balances, fixed deposits and government securities to address the negative impact on the financial performance of pension schemes in Kenya.