Relationship Between Operational Factors and Cost Efficiency in Defined Contributions Pension Schemes

Authors

  • Yvonne Muthwii Scholar, Jomo Kenyatta University of Agriculture and Technology, Kenya
  • Dr. Julius Miroga Bichanga, (PhD) Senior Lecturer: Jomo Kenyatta University of Agriculture and Technology, Kenya

DOI:

https://doi.org/10.61108/ijsshr.v2i3.130

Keywords:

Operational Practices, Service Provider Expenses, Fund Size, Portfolio-Mix, Investment Strategy, Cost Efficiency

Abstract

Pension schemes in Kenya provide income for individuals who attain the retirement age and consequently boost economic growth as well as accelerate domestic savings. The industry is regulated by the Retirement Benefits Authority (RBA). The purpose of the study was to determine the relationship between operational practices on cost efficiency in defined contributions pension schemes in Kenya. The specific objectives were to determine the relationship between service provider costs on cost efficiency in defined contributions pension schemes, to examine the relationship between fund size on cost efficiency in defined contributions pension schemes, to determine the relationship between portfolios mix on cost efficiency in defined contributions pension schemes and to examine the relationship between investment strategy on cost efficiency in defined contributions pension schemes. The study will be significant to the management of defined contributions pension schemes in Kenya and other researchers. The study adopted a descriptive research design. The target population was all the 1,262 pension schemes in Kenya. Stratified random sampling was employed to select small schemes, medium schemes, large schemes and mega pension schemes in Kenya and obtained a total of 304 sample population. The study used secondary data. Descriptive statistics was performed by getting frequencies, means, and standard deviation for the purpose of understanding the results, which was displayed in tables, charts, and graphs. A multiple regression model was fitted to the data and the results revealed that there was a relationship between cost efficiency and service provision expenses, portfolio mix, fund size and investment strategies. Service provision expenses for a pension scheme should be able to cover the cost of administration without unduly compromising the growth of pension savings. Further, while a substantial fund size offered advantages, it should be complemented by strategic acumen and diligent oversight to ensure the scheme delivers on its mandate. A balanced and diversified portfolio is considered a cornerstone providing a buffer against market volatility and therefore enhancing the prospects of sustainable goals and cost efficiency. Finally, the cost associated with portfolio mix and risk management was a necessary investment in securing the long-term sustainability and stability of the pension fund. Recommendation for further studies on cost efficiency of defined benefits schemes should be done as well as further studies on challenges facing pension schemes in Kenya

Downloads

Download data is not yet available.

References

. Ahmad, M. (2019). The Impact of Global Challenges on Retirement Reforms in Africa. IRF Conference. National Pension Commission.

. Antolin, P. (2018). Pension Fund Performance. OECD Working Papers on Insurance and Private Pensions, No. 20, OECD publishing

. Arinaitwe P. H. (2017). Business Research Methods, Tata McGraw-Hill, (8th Ed.), New Delhi, India.

. Asher, M. & Nandy, A. (2021). Governance and Regulation of Provident and Pension Schemes in Asia. Edward Elgar.

. Bateman, H., & Mitchell, O. S. (2019). New evidence on pension plan design and administrative expenses: The Australian experience. Journal of Pension Economics & Finance, 3(1), 63–76.

. Bikker, J. A., & De Dreu, J. (2019). Operating costs of pension funds: The impact of scale, governance, and plan design. Journal of Pension Economics & Finance, 8(1), 63–89.

. Chandra P. (2009). Investment Analysis and Portfolio Management. Third Edition, Tata Mc Graw-Hill Publishing Company Limited, New Delhi

. Committee on worker’s capital. (2018). Pension Fund Cost Transparency: A How-to Guide for Unions—Committee on Workers’ Capital. https://www.workerscapital.org/pension- fundcost-transparency-a-how-to-guide-for-unions

. Cooper, D.R and Schindler, P.S (2015). Business Research Methods, Tata McGraw-Hill, 8th Edition, New Delhi, India

. Estes, B., & Polnick, B. (2012). Examining motivation theory in higher education: An expectancy theory analysis of tenured faculty productivity. International Journal of MBA, 1, 13–19.

. Fatima, H., & Yasmin, B. (2021). Efficiency and Productivity analysis of Pakistan's farm. Pakistan Journal on Agricultural Research, 29 (3), 312-323.

. Fields, J. A., & Tirtiroglu, D. (2021). Agency-theory implications for the insurance industry: A review of the theoretical and empirical research. Quarterly Journal of Business and Economics, 40–61.

. Hlavac J., (2021). The Performance of the Czech Private Pension Scheme: Current Design and its position within CEE countries, unpublished Master Thesis, Charles University in Prague

. Ichingwa, B. I., & Mbithi, S. M. (2021). Effect of total contribution on financial sustainability of pension schemes in Kenya: a survey of pension schemes in Kenya. International Journal of Finance and Accounting, 2(6), 11-19.

. Jensen, M. C., & Meckling, W. H. (2021). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

. Karagiannis, G., Katranidis, S., & Tzouvelekas, V. (2018). Measuring technical, allocative and cost efficiencies of seabass and seabream farms in Greece. Aquaculture Economics & Management, 4(3), 191-207.

. Kigen, A. K. (2021). Effect of fund size on the financial performance of pension funds in Kenya [PhD Thesis]. KCA University.

. Kikete, G. N. (2018). The effect of regulatory control changes on the financial performance of pension schemes in Kenya [PhD Thesis].

. Kiplagat, M. K. (2019). The effect of asset allocation on the financial performance of pension funds in Kenya [PhD Thesis]. University of Nairobi.

. Klumpes, P. J., & Whittington, M. (2018). Determinants of actuarial valuation method changes for pension funding and reporting: Evidence from the UK. Journal of Business Finance & Accounting, 30(1–2), 175–204.

. Mugenda, O & Mugenda, A. (2012). Research methods, 3rd edition, Labis graphics Service, Nairobi, Kenya.

. Muia F. M., (2020). The Effect of Asset Allocation on the Financial Performance of Pension Funds in Kenya, unpublished MBA project, University of Nairobi

. Mukoba, P. N. (2018). Relationship between outsourcing and operational efficiency of pension schemes of companies listed at the Nairobi stock exchange [PhD Thesis]. University of Nairobi.

. Muli, A. M., & Jagongo, A. (2019). Investment strategies, fund size and financial performance of defined contribution schemes in Kenya: Theoretical review. International Academic Journal of Economics and Finance, 3(3), 253–265.

. Muriithi, J. (2021). Analysis of the Effect of Operating Costs on Financial Performance of Occupational Pension Schemes in Kenya. Research Journal of Finance and Accounting, 8(1), 40–49.

. Mutula, A. K., & Kagiri, A. (2018). Determinants Influencing Pension Fund Investment Performance in Kenya. International Journal of Finance, 3(1), 14-36.

. Mwangi, R. (2020). Strategic management practices and performance of retirement benefits schemes in Kenya [PhD Thesis]. UoN.

. Namusonge, G. S., Sakwa, W. W., & Gathogo, G. M. (2021). Impact of Asset Mix on Financial Performance of Registered Occupational Pension Schemes.

. Ngetich, C. (2022). Determinants of the growth of individual pension schemes in Kenya. Unpublished MBA Project, University of Nairobi.

. Ngugi, W., Njuguna, A., & Wambalaba, F. (2021). The Influence of Pension Scheme Maturity on Investment Strategies of Pension Funds in Kenya. International Journal of Business and Management, 13(10), 1–1.

. Njeru, S. E. (2019). An evaluation of financial performance on portfolio holdings by pension funds in Kenya [PhD Thesis].

. Njuguna, A. G. (2020). Strategies to improve pension fund efficiency in Kenya [PhD Thesis]. Nelson Mandela Metropolitan University.

. Oluoch, M. A. (2018). The determinants of performance of pension funds in Kenya [PhD Thesis]. University of Nairobi.

. Omonyo B. A., (2018). A Survey of Investment Practices of Pension Fund Managers in Kenya, unpublished MBA Project, University of Nairobi

. Onyango, D. A. (2021). The relationship between investment strategies and financial performance of pension funds in Kenya [PhD Thesis].

. Oyoo, J. O. (2020). Factors Affecting Financial Performance Of Pension Schemes In Kenya[PhD Thesis]. Kca University.

. Retirement Benefits Authority. (2018). The Pensioner. Pension Assets Increase, 6(1), 3-5 Robertson D., Wielezynski E., (2018). Alternative Assets and Public Pension Plan Performance.

. Rotich M. S., (2021). The Effect of Real Estate Investments on the Financial Performance of Pension Funds in Kenya, unpublished Msc. Finance Project, University of Nairobi

. Sabugo, N. Y. (2021). Determinants of Investment Income Growth in the Tanzanian Social Security Schemes a Case of Social Security Schemes Industry, Unpublished PhD dissertation, Mzumbe: Mzumbe University.

. Sau, E & Njeru, A. (2018). Determinants of financial growth of retirement benefits in Kenya: a case of occupational retirement schemes International Journal of Innovations, Business and Management (IJIBM) 12(1), 201- 268.

. Saunders, M., Lewis, P., and Thornhill, A. (2017). Research methods for business students, 7th edition, Pearson Education Limited

. Tapia, W., & Yermo, J. (2018). Fees in individual account pension systems: A cross-country comparison.

. Tari, J., Wawire, N. H., & Ombuki, C. (2020). Trustee Related Determinants of Scheme Design in Occupational Defined Contribution Schemes in Kenya.

. Tijjani, M. (2019). Determinants of financial sustainability of pension fund administrators in Nigeria. Lagos: Ahmadu Bello University.

. Wanjohi, C. W., Wanjau, K. P., & Anyango, D. (2022). The role of pension schemes on motivation of employees: A case study of Tuskys supermarkets. Knowledge Management for Industrial Innovation and Development, 47.

. Zikmund, W. G., Babin, B. J., Carr, J. C., and Griffin, M. (2013). Business Research Methods. Mason: South-Western..

Vol. 2 No. 3 (2024) of the International Journal of Social Science and Humanities Research (IJSSHR)

Downloads

Published

2024-10-08

How to Cite

Muthwii, Y., & Bichanga, J. M. (2024). Relationship Between Operational Factors and Cost Efficiency in Defined Contributions Pension Schemes. International Journal of Social Science and Humanities Research (IJSSHR) ISSN 2959-7056 (o); 2959-7048 (p), 2(3), 97–109. https://doi.org/10.61108/ijsshr.v2i3.130

Issue

Vol. 2 No. 3 (2024): International Journal of Social Science and Humanities Research (IJSSHR) ISSN 2959-7056 (o); 2959-7048 (p)

Section

Articles

License

Copyright (c) 2023 International Journal of Social Science and Humanities Research (IJSSHR) ISSN 2959-7056 (o); 2959-7048 (p)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

The International Journal of Social Science and Humanities Research (IJSSHR) adopts the Creative Commons Attribution-NonCommercial 4.0 International (CC BY-NC 4.0) license terms for all published articles. This license governs the rights and permissions associated with the use, distribution, and reproduction of the published content, ensuring a balance between authors' intellectual property rights and the wider dissemination of knowledge.

Under the CC BY-NC 4.0 license, the following terms apply:

  1. Attribution (BY): Users are required to give appropriate credit to the original authors and provide a link to the original work. Proper attribution acknowledges the intellectual contribution of the authors and allows others to trace the research back to its source.

  2. NonCommercial (NC): The license prohibits commercial use of the published material. Users may not exploit the work for commercial purposes without obtaining explicit permission from the copyright holder. Non-commercial use includes activities such as selling, licensing, or monetizing the content.

  3. Adaptation: The CC BY-NC 4.0 license allows users to remix, transform, or build upon the original work, but only for non-commercial purposes. Adaptations or derivative works based on the published material must also be shared under the same license terms, giving proper attribution to the original authors.

The CC BY-NC 4.0 license ensures that the published research in the International Journal of Social Science and Humanities Research remains accessible to a wide audience while respecting the intellectual property rights of the authors. It encourages the sharing, dissemination, and collaborative use of knowledge within the academic community, fostering innovation and furthering the advancement of social sciences and humanities research.

Authors publishing their work in IJSSHR grant the journal the right to publish and distribute their articles under the CC BY-NC 4.0 license. This license facilitates the unrestricted availability of the research, allowing readers, educators, and researchers to access, cite, and build upon the published content, as long as they comply with the license terms.

By adopting the CC BY-NC 4.0 license, IJSSHR promotes open access principles and encourages the responsible use of scholarly work. It empowers researchers to disseminate their findings widely and fosters collaboration, ensuring that knowledge generated in the field of social sciences and humanities can have a broader societal impact.

Crossref
Scopus
Google Scholar
Europe PMC