FIRM SPECIFIC FACTORS AND FINANCIAL SUSTAINABILITY OF PENSION SCHEMES IN KENYA
Daniel Meroka Atandi - Master In Business Administration (Finance), Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr Joshua Bosire - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
Financial sustainability among pension schemes is of paramount importance as lack of it implies loss of member funds. Pension schemes in Kenya are associated with loss of billions of money every year. Funds flow has typically been positive but with liquidity issues, portability and imminent retirement of a large cohort of members alters the scenario. The RBA 2016 and 2019 report indicated that there was an improvement in financial returns in between 2006 and 2015 which could be attributed to the improved investment strategies adopted by the service providers. However, in 2018 there was a drop in investment returns. Such results could be partly attributed to the firm specific factors of the pension schemes. The general research objective of this study was to examine the firm specific factors affecting financial sustainability of pension schemes in Kenya. Specifically, the research study sought to determine how financial sustainability of pension schemes in Kenya was influenced by portfolio mix, operating costs, liquidity, and fund size. This study had four independent variables: portfolio mix, operating costs, liquidity, and fund size. The dependent variable was financial sustainability of pension schemes in Kenya. The study was based on four theories namely; modern portfolio theory, transactional cost theory, liquidity theory and budgeting theory. The study's target population was all the 1340pension schemes in Kenya, while the sample population was the 93 pension schemes arrived at using Yamane formula. The study period was five years spanning 2016 to 2020, while a descriptive research design was employed. Secondary data for 93 pension schemes was obtained from published financial statements and annual reports. Data analysis was achieved through conducting inferential statistics as well as descriptive statistics. Regression and correlation analysis were used to test the study hypotheses by establishing the relationship between firm specific factors and financial sustainability. The study found that portfolio mix (β=0.344, p=0.043) and fund size (β=0.336, p=0.000) had a positive and significant effect on the financial sustainability among pension schemes in Kenya. The study also found that liquidity (β=0.021, p=0.031) and operating costs (β=0.637, p=0.000) had a positive and significant effect on the financial sustainability among pension schemes in Kenya. The results also indicated R2 of 0.584 which implied that the selected independent variables contributed 58.4% to variations in financial sustainability. 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 financial sustainability. 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 financial sustainability.