Firm Characteristics and Financial Performance of Pension Funds in Kenya
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Date
2025-11
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Kenyatta University
Abstract
Pension schemes play a critical role in shaping Kenya’s economic landscape by providing a safety net for citizens during retirement. Globally, pension systems have been established to ensure income replacement for aging populations; however, empirical evidence on factors that influence the financial performance of pension schemes is limited in the Kenyan context. This gap has left policymakers and fund managers with insufficient guidance on strategies to optimize scheme outcomes. This study sought to address this gap by examining the effect of firm characteristics—fund size, fund design, portfolio mix, and membership age—on the financial performance of pension schemes in Kenya, while considering the moderating role of regulatory oversight by the Retirement Benefits Authority (RBA). Employing a descriptive research design, the study drew on Stakeholder Theory, Agency Theory, and the Theory of Constraints to explore both direct and indirect relationships between the variables. The study population comprised 1,075 pension schemes registered with the RBA, from which 39 schemes were purposively sampled. Secondary data covering 2018–2022 were extracted from annual reports and analyzed using SPSS Version 20. Descriptive statistics, including mean, median, and standard deviation, summarized the data, while inferential analysis using multiple linear regression assessed the relationships between firm characteristics and financial performance, measured by return on investment. Diagnostic tests confirmed that the dataset satisfied assumptions of normality, stationarity, and absence of multicollinearity, heteroscedasticity, and autocorrelation, indicating a robust analytical model. Results revealed that fund size, portfolio mix, and membership age had a statistically significant positive effect on financial performance, whereas fund design exhibited a statistically significant negative effect. Additionally, regulatory oversight by the RBA moderated the relationship between firm characteristics and performance, highlighting the importance of effective governance. In conclusion, the study established that larger fund sizes, diversified portfolio mixes, younger membership profiles, and appropriate fund designs are associated with improved financial performance of pension schemes in Kenya. Based on these findings, it is recommended that policymakers and fund managers prioritize consolidation strategies to expand asset bases, diversify investment portfolios to balance returns and risk, attract younger members to ensure sustainability, transition from traditional defined benefit plans to defined contribution plans where feasible, and ensure that the RBA continuously refines its regulatory framework to support compliance and strategic growth within the sector.
Description
A Research Project Submitted to the School of Business Economics and Tourism in a Partial Fulfillment for the Award of the Degree of Master of Business Administration at Kenyatta University.
Supervisor
Faith Nkuru