Implications of retirement benefits' act (1997) on investment performance of provident pension funds in Kenya

Abstract

This study was conducted with the objective of determining the possible implications of Retirement Benefit Act (1997) on the investments performance of provident pension funds in Kenya. Data used in the study was for the period 1992 to 2001.

The Retirement Benefit Authority investment guidelines which became effective in 2001 classifies investment assets as cash and demand deposits, fixed deposits and time deposits, commercial paper and corporate bonds, government securities, preference and ordinary shares of quoted companies, immovable properties, guaranteed funds and offshore investments in bank deposits and government securities. These guidelines also stipulate the maximum in percentage terms that provident pension funds should invest in each of the specified assets.

Though investment guidelines became effective from 2001, provident funds did not manage to adjust their investment portfolios due to various technicalities which included appointment of fund managers, custodians, trustees and an actuary. Nevertheless, the study findings reveal that investment performance before application of RBA guidelines are better than after RBA applied performance. However, with the application ofRBA guidelines, provident pension schemes have experienced reduced risk,

decreased reported investment performance and drastic reduction of variability in returns from year to year, an indication of more stable earnmgs.