Influence of Financial Management Practices on Sustainability of Pension Funds Administrative Institutions in Kenya

Abstract

This study sought to investigate the influence of financial management practices on the sustainability of pension funds administrative institutions (PFAIs) in Kenya. The study was guided by four specific objectives which were: to assess the influence of funding management, investment management, financial control and financial reporting practices on the sustainability of PFAIs in Kenya. Systems theory, modern portfolio theory, Stewardship theory, stakeholders’ theory and the theory of constraints guided the study. The study adopted a correlational research design with a target population of 85 PFAIs operating in Kenya from 2008 to 2016. Stratified sampling and simple random techniques were used to select the sample and a sample size of 70 PFAIs was drawn from the target population using Slovin’s formula. In data collection, the study utilized disclosures in annual reports of pension funds and questionnaires comprising of structured questions which were administered to pension funds administrators in each institution that participated in the study. The study utilized primary collected through structured questionnaire and data was analysed using descriptive and inferential statistics in SPSS. Reliability of the research instrument was tested by use of Cronbach alpha. The findings of the study shows that funding management, investment management, financial control, and financial reporting practices had a positive and statistically significant influence on the sustainability of PFAIs in Kenya. The study recommends that pension funds trustees should regularly review financing policies that enhance the annual distribution of investment returns and cost management policies on annual budgets. They should consistently review policies on investment management strategies and that are fully compliant with the investment policy statements (IPS) while ensuring that they always give total investment discretion to fund managers for improved investment performance. Further, trustees should always comply with investment guidelines. Pension funds management should regularly review financial reporting policies that enhance preparations of proper accounting records and financial report. Trustees should always ensure that financial reporting practices are in compliance with the financial reporting framework and regularly review polices on communication strategies to all stakeholders. The Kenyan Government through the Retirement Benefits Authority should set and regularly review guidelines that strategically promote good financial management practices of pension funds by all stakeholders.