The effect of firm size on financial performance of pension schemes in Kenya

Abstract

Pension funds are the principal sources of retirement income for millions of people in the world. Pension funds are also important contributors to the Gross Domestic Product (GDP) of countries. Funded pension systems have in the recent past gained popularity since they contribute to the economic growth of countries worldwide through direct contribution to the GDP and acting as consumers of financial services. Local studies that have been done include firm efficiency differences, and distribution in the Kenyan manufacturing sector, which used firm size as a study variable. In Kenya, no study has endevoured to determine the effects of firm size on financial performance of pension schemes. This study sought to fill the existing research gap by determining the effects of firm size on financial performance of pension schemes in Kenya, by trying to answer the following question: What are the effects of firm size on financial performance of pension schemes in Kenya? The objective of this study was to determine the effects of firm size on financial performance of pension schemes in Kenya, and intends: to determine the effect of market share; to the assess the effect of the number of employees; to establish the effect of book assets; to establish the effect of the number of branches and to establish the effect of retained earnings on the financial performance of pension schemes in Kenya. The research was conducted through a descriptive research design. The target population for this study was 30 occupational pension schemes in Kenya. The research was carried out using secondary data. The data was collected from annual reports and financial statements. These included aspects from the published annual reports, book value, and equity of institutions to be surveyed. The data collected was analyzed by use of Microsoft Excel 2010 and Statistical Package for Social Sciences (SPSS) Version 20. A multivariate regression model was applied to determine the relative importance of each of the five variables with respect to the role of firm size on performance of pension schemes in Kenya. The study concludes that that there has been significant market volatility as evident from the NSE index, Treasury bill rate movement and offshore indices. The study recommends that RBA should ensure all schemes, particularly those with segregated investments, have up to date investment policies and that the strategic asset allocation is included within the investment policy. It also recommends compulsory saving for all in employment, and the introduction of a flexible scheme for those in the informal sector, who can make periodic payments. It also recommends the undertaking of a comprehensive reform that requires a coordinated strategy and a significant amount of ground work in terms of evaluation of policy and implementation choices that would lead to enactment of enabling legislation, building of institutional capacity and sensitization of approved reform programmes.