The Effect of Early Access to Retirement Benefits on the Financial Performance of Pension Schemes in Kenya

Abstract

This study was carried out to establish the effect of early access to retirement benefits before the retirement age on financial performance of pension schemes in Kenya for the period 2009 to 2013. Agency Theory and Lifecycle theory of consumption smoothing influenced the study. There was a population of 1200 schemes. A simple random sample selection of schemes from secondary data yielded a sample of 80. Financial performance-pf was defined as; x1 representing the amount of funds accessed early from the registered pension schemes in Kenya and was measured as a fraction of the total pension savings whereas x2 represented the cost associated with early access to pension savings and was measured as a fraction of total administrative costs. Finally, X3 represented the Central Bank of Kenya’s annual, Average 91 day, Treasury Bill Rates. The analysis was done by use of software, SPSS version 20. Descriptive and inferential analysis was done by use of correlation coefficient and regression coefficients. Results revealed that financial performance of pension schemes was affected negatively whenever benefits were accessed earlier before the retirement period. This suggested that benefits paid earlier to member’s reduced financial performance of pension schemes. The costs associated with early access to benefits before the retirement period had a weak, negative effect on financial performance of pension schemes. This implied that costs due to earlier access before retirement period reduced the financial wellbeing of pension schemes. Results of Treasury Bill Rates indicated some positive effect on financial performance of pension schemes; thus, a unit of increase in Treasury Bill Rates, increased financial performance of pension schemes. Those measurements were significant at 95% confidence interval. The researcher therefore concluded that, return on assets is a important factor in determining the effects of early access to benefits on financial performance of pension schemes in Kenya.