Effects of regulations on financial performance of the retirement benefits funds in Kenya

Abstract

Regulatory controls have a significant effect on the growth of the pension schemes. This means that pension regulatory controls lead to improved financial performance and growth of the individual pension schemes. This study aimed to find out what has been the effect of the regulatory control changes passed since 2007 to date on the financial performance of pension schemes.The objective of the study was to establish the effects of regulations on the financial performance of retirement benefits funds in Kenya. Secondary Data was collected from retirement benefit fund financial reports and multiple regression analysis used in the data analysis. The study revealed that there was a positive relationship between financial performance of retirement funds and liquidity of the scheme, the study also found that there was negative relationship between financial of retirement benefits fund and scheme expense ratio and financial distress or vulnerability. The study found that regulations affects the financial performance of retirement benefits funds in Kenya, thus the study concludes that since the enactment of the Retirement Benefits Authority Act, there has been significant growth in performance of retirement benefits fund. The relationship between regulatory changes and financial performance of pension schemes in Kenya is unidirectional and runs from regulatory changes to performance and not vice versa. The study further concludes that regulatory changes have a significant influence on the performance of pension schemes in Kenya as the results have passed significance tests. Therefore, the control of scheme expenses, provision to access full employee and half of employer portion before retirement and reduction of payment period from sixty to thirty days have had a major effect on the financial performance of pension schemes in Kenya. The study recommends that the policy makers should evaluate the regulatory changes that they propose so that the changes can be able to stimulate growth in the pension industry rather than stifle it. The policy makers also need to expand the scope of the regulatory changes in order to ensure that the pension schemes are governed in responsible way to reduce vices such as corruption and thereby improve performance. The study also recommends that the government through the Retirement Benefits Authority should put up strict measures to ensure that the pension schemes are observing the regulations enacted as a way of ensuring improved performance.