Influence of Pension Schemes Financing Structure on the Performance of Pension Funds in Kenya

Abstract

Reports from Republic of Kenya show that pension schemes in Kenya are associated with loss of billions of money every year, which reveals a decline in performance of the firms. The decline in returns of pension funds leads to delay or non-payment to retirees thus hindering realization and achievement millennium development goals. The purpose of the study was to assess the influence of pension schemes financing structure on the performance of pension funds in Kenya. The study determined the influence of retained earnings, amount of contributions, accruals and share capital on the performance of pension funds in Kenya with adherence to regulations as the moderating variable. The study employed casual research design. The target population was 1308 pension schemes registered with the RBA from which a sample of 79 pension funds was selected. Data was collected from the annual financial statements of the pension funds filed with RBA. Correlation analysis was used to test the relationship between the independent variables and dependent variable. Regression analysis was used to test whether the study variables influence performance of pension funds. The study findings revealed that retained earnings and performance (ROA) are positively and significantly related (β=0.06835, p=0.000); amount of contributions and performance (ROA) are positively and significantly related (β=3.01E-09, p=0.00225); share capital and performance (ROA) are positively and significantly related(β=2.47E-10, p=0.000); accruals and performance (ROA) are positively and significantly related (β=1.79E-08, p=0.0157); and adherence to regulation and performance (ROA) are positively and significantly related (r=4.29196, p=0.000). Further the study findings revealed a statistically significant moderation effect of adherence to regulations on the influence of independent variables (retained earnings, amount of contributions and accruals) on performance. However, the moderation effect of adherence to regulations on the influence of share capital on performance was not supported. Based on the study findings, the study concluded that retained earnings, amount of contributions, share capital and accruals have a positive and significant influence on performance of pension schemes in Kenya. Further, the study concluded that adherence to regulations has a significant moderating effect on the relationship between financing structure and performance of pension schemes in Kenya. Based on the results, the study recommended that pension schemes in Kenya should seek to increase retained earnings. They should formulate strategies on how to increase the density of contributions that they receive from the contributors. The firms should find ways of shortening the cash conversion cycle and the receivable collection period. Further, the study recommended the need for pension schemes to adhere to the set regulations. The implication of the study is that financing structure plays a significant role in the performance of pension schemes in Kenya. Pension funds may make use of the findings in this study to make optimal finance policies. The regulators and other players in the pension industry will make reference to this study as they work to develop the industry and the economy as a whole. This implies that the study sets the stage for the review of the existing industry regulations and policies