INVESTMENT OF THE FUND, FINANCING STRUCTURE AND FINANCIAL PERFORMANCE OF UMBRELLA AND INDIVIDUAL PENSION SCHEMES IN KENYA

Owen Jacob Ebichinji, Dr. James M. Gatauwa (PhD), Dr. Francis K. Gitagia (PhD)

Abstract


A pension scheme is a financial arrangement whereby an employer or individuals save for retirement. Pension schemes create employment and boost economic growth. Pension Schemes assets to GDP (%) in Kenya stood at 13.3 % in 2020 with expected increase in subsequent years. However, return on assets decreased from 2.40% in 2018 to 1.92% in 2022. Retained earnings decreased from Ksh. 404.8 billion in 2017 to 50.5 billion in 2018 then increased to 239 billion in 2020. This paper examines effect of investment of the fund and financing structure on financial performance of umbrella and individual pension schemes in Kenya. Financial performance was measured using return on investment (ROI). The study utilized Modern Portfolio Theory and Pecking Order Theory. The researcher utilized secondary data including yearly reports and publications. The target population consisted of 32 umbrella and 41 individual pension schemes in Kenya. Census was utilized. The study period was 5 years from 2018 to 2022. Panel data analysis was used for inferential analysis. Inferential statistics were performed using regression analysis. Descriptive analysis was utilised including mean and standard deviation. Diagnostic Tests including Linearity, Normality and Multicollinearity Tests were carried out. Explanatory research design was utilized. Ethical considerations were met. The study found that investment of the fund and financing structure had a positive and significant effect on financial performance. The study recommended that schemes should increase diversification of investment portfolios and periodic stress-testing to assess resilience under various scenarios. It also recommended that prudent income distribution and reserve policies should be adopted by schemes. Stakeholders will utilize study findings to establish new strategies for managing pension schemes. The research suggested further studies to be done on0other0factors that influence financial0performance of umbrella and individual pension schemes in Kenya.

Key words: Retirement, Pension Schemes, Return on Investment, Regulations, Financial Performance


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References


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