Effect of Fund Characteristics on Financial Performance of Pension Schemes in Kenya

Abstract

Every year, billions of dollars are lost due to poor performance in Kenya's pension scheme. Liquidity problems, portability issues, and the anticipated retirement of a large group of members have altered the situation for the better. Financial returns increased between 2006 and 2015, according to the Reserve Bank of Australia's 2016 and 2019 reports, which might be ascribed to superior investment strategies implemented by service providers at the time. Returns on investments, on the other hand, have decreased in 2018. As a consequence of the fund characteristics of the pension schemes, such outcomes might be explained in part. The purpose of this study was to determine the relationship between fund characteristics and the performance of pension schemes in Kenya. The portfolio mix, liquidity, fund size, and operational expenses were all considered independent factors in this analysis. Descriptive research design was used. The target population was the 1340 pension schemes in Kenya. The sample size was 93 arrived at using Yamane formula. Research variables data were derived from Retirement Benefits Authority (RBA) from 2016 to 2020. Regression and correlation analysis were used to test the study hypotheses by establishing the relationship between portfolio mix and performance. The study found that portfolio mix (β=0.118, p=0.000) and fund size (β=0.033, p=0.007) had a positive and significant effect on the performance among pension schemes in Kenya. The study also found that liquidity (β=0.003, p=0.463) and operating costs (β=0.001, p=0.905) had no significant effect on the performance among pension schemes in Kenya. The results also indicated R2 of 0.333 which implied that the selected independent variables contributed 33.3% to variations in performance. The study recommends that pension schemes’ policy makers should come up with policies that increase portfolio mix as this will lead to an increase in performance. The study further recommends that management and directors of pension schemes should develop strategies aimed at increasing fund size as this leads to a rise in performance.