THE EFFECTS OF CORPORATE GOVERNANCE PRACTICES ON
THE GROWTH OF PENSION SCHEMES IN KENYA
BY
LAMECK OKEYO
D53/OL/22116/2011
A Research Project Submitted to the School of
Business, Department of Business Administration
in Partial Fulfillment of the Requirement for the
award of Master of Business Administration of
Kenyatta University
NOVEMBER, 2013
DECLARATION
This research Project is my original work and has not
been presented for a degree in any other university or
for any other award.
Signature……………………………………………Date…………………………
Lameck Okeyo
D53/OL/22116/2011
This Project has been submitted for examination with my
approval as the university supervisor.
Signature……………………………………………Date…………………………
Dr. Stephen Muathe (PhD),
Department of Business Administration,
School of Business, Kenyatta University.
This Project has been approved for examination by the
chairman of the department.
Signature……………………………………………Date…………………………
The Chairman,
ii
Department of Business Administration,
School of Business, Kenyatta University.
DEDICATION
I would like to dedicate this project to my parents whose
love for education encouraged and saw me through the
educational system to university level.
I would also wish to dedicate this research project to my
family members. Their prayers and support was a great
encouragement to me in the entire research process.
iii
ACKNOWLEDGEMENT
I would like to acknowledge with gratitude my supervisor
namely; Dr. S. Muathe (PhD) for his tireless assistance
and supervision during my research work and preparation
of the project. I also acknowledge my classmates for the
support with ideas that contributed to the success of
this project.
iv
I would also like to thank the librarians at the Kenyatta
University Library for their support with the books used
for literature review and other valuable information that
they provided to aid in the completion of this project.
Above all, I thank God Almighty for taking me
through my studies and the research work so for.
v
TABLE OF CONTENTS
TITLE
PAGE .....................................................
..........................................................
i
Declaration................................................ii
Dedication................................................iii
Acknowledgement............................................iv
Table of Contents...........................................v
List of Figures...........................................vii
List of Tables...........................................viii
Abbreviations and Acronyms................................ix
Operational Definition of Terms...........................x
Abstract...................................................xii
CHAPTER ONE: INTRODUCTION..................................1
1.1 Background to the study...........................1
1.2 Statement of the Problem..........................3
1.3 Objectives of the Study...........................3
1.4 Research Questions................................4
1.5 Significance of the Study.........................5
1.6 Scope of the Study................................5
1.7 Limitations of the Study..........................5
CHAPTER TWO:LITERATURE REVIEW..............................7
2.1. Introduction.....................................7
2.2 Theoretical Review................................7
2.3 Empirical Review..................................8
2.4 Summary of the Review and Research Gaps..........15
vi
2.5 Conceptual Framework.............................15
CHAPTER THREE:RESEARCH METHODOLOGY.......................17
3.1 Introduction.....................................17
3.2 Research Design..................................17
3.3 Target Population................................17
3.4 Sampling Techniques..............................17
3.5 Data Collection Instruments......................18
3.6 Data Collection Techniques.......................20
3.7 Data Processing and Analysis.....................20
CHAPTER FOUR:RESEARCH FINDINGS AND DISCUSSIONS..........22
4.1 Introduction.....................................22
4.2 Analysis of the Response Rate and Demographic
Information..........................................22
4.3 Risk Based Internal Control......................24
4.4 Financial Management Systems.....................26
4.5 Regulatory Framework Compliance..................29
4.6 Record Management Systems........................30
4.7 Competencies of the Management Body..............32
4.8 Growth of the Pension Schemes....................35CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS.......39
5.1 Introduction.....................................39
5.2 Summary..........................................39
5.3 Conclusion.......................................41
5.4 Recommendations..................................42
5.5 Suggestions for Further Research.................43
REFERENCES.................................................44
APPENDICES.................................................46
Appendix I: Questionnaire cover letter...............46
vii
Appendix II: Questionnaire..........................47
LIST OF FIGURES
Figure 2.1: The Conceptual Framework...................16
Figure 4.1: Effectiveness of Financial Management Systems
.......................................................28
Figure 4.2: Management Team Training Adequacy.........34
Figure 4.3: Overall Growth of the Pension Schemes......35
Figure 4.4: Satisfaction with the Growth of the Pension
Schemes................................................36
viii
LIST OF TABLES
Table 3.1: Reliability Assessment......................20
Table 4.1: Analysis of the Study Response Rate.........22
Table 4.2: Analysis of the Demographic Information.....23
ix
Table 4.3: Analysis of Risk based Internal Control
Aspects................................................25
Table 4.4: Analysis of Financial Management Systems of
the Pension Schemes....................................27
Table 4.5: Pension Schemes’ Compliance to the Regulatory
Framework..............................................29
Table 4.6: Analysis of the Record Management System
Issues.................................................31
Table 4.7: Results of the Analysis of Management Body
Competencies...........................................33
Table 4.8: Results of the Pearson Correlation Analysis. 37
x
ABBREVIATIONS AND ACRONYMS
GDP : Gross Domestic Product
IOPS : Institute for Pension Supervisors
IFPS : Institute for Pension Supervisors
NCVO : National Council for Voluntary
Organisations
OECD : Organisation for Economic Co-operation and
Development
RBA : Retirement Benefits Authority
UK : United Kingdom
USA : United States of America
SPSS : Statistical Package for Social Sciences
xi
OPERATIONAL DEFINITION OF TERMS
Growth: This is the process of measuring
an enterprise's success. Business
growth can be achieved either by
boosting the top line or revenue of
the business with greater sales or
service income, or by increasing the
bottom line or profitability of
the operation by minimizing
costs.
xii
Governance: This is the systems and
processes concerned with
ensuring the overall direction,
effectiveness, supervision and accountability
of an organisation.
Corporate Governance: This is where the
governance provides the
structure through which the objectives of the
company are set, and the means of
attaining those objectives
and monitoring performance are
determined.
Risk-Management Frameworks: This is as the process -
effected by an
organisation’s board of trustees, management
and other personnel - designed to
provide reasonable assurance
regarding the achievement of
objectives in terms of: effectiveness and
efficiency of operations; reliability of
financial reporting; and
xiii
compliance with laws and
regulations.
Financial Management System: This is the process of
managing an
organization’s financial resources so that it
can meet its objectives.
Budget: This is a financial or business
plan that indicates incomes of a
business firm and apportioned
expenditure to cater for the
operations over a given period
of time.
xiv
ABSTRACT
Pension funds are the principal sources of retirementincome for millions of people in the world. Pensionschemes contribute significantly to the reduction in old-age poverty since a large proportion of the incomes ofretirees is derived from their previous pensionarrangements. In addition, retirement income accounts for68% of the total income of retirees in Kenya hence animportant contributor to the gross domestic product (GDP)of country. However, the pension schemes in Kenya havebeen characterized by rampant mismanagement andmisappropriation of funds that have led tounderperformance. In addition, the effectiveness of theapplication of the corporate governance practices havebeen blamed for failure of many pension schemes to meettheir financial obligations and overall mismanagement ofthe schemes. In addition, most pension schemes in Kenyaare grossly under-funded and this has a negative effecton their growth. This study sought to assess the effectsof corporate governance practices on the growth ofpension schemes in Kenya. The study design wasdescriptive research design. The target population
xv
included all the 1216 Pensions Schemes registered byRetirement Benefits Authority (RBA) in Kenya. Systematicrandom sampling method was used to draw a sample of 122respondents (which represents 10% of the targetpopulation) from the Pensions Schemes registered by RBA.Semi- structured questionnaires was administered to therespondents. The data was analyzed by generatingdescriptive statistics such as percentages, frequencies,means and standard deviation. In addition, inferentialstatistics were also utilized. Key inferential statisticsutilized was Pearson correlation analysis. This was usedto establish the relation between the dependent and theindependent variables of study. Statistical Package forSocial Sciences (SPSS) aided in the statistical analysisof quantitative data. Data was presented using tables,charts and bar graphs. The findings showed that themembers of the pension schemes receive inaccurateinformation which led to inappropriate decisions, latepayment of contributions was also evident which led todelay or inaccuracies in payment of benefits. Inaddition, the existing IT system was found to beinsufficient to handle the financial transactionseffectively. This study recommends that the pensionschemes invest in an efficient financial managementsystems that will effectively safeguard the members’contribution. In addition, the management needs to put inplace a good and efficient IT system that is sufficientto handle all the financial transactions effectively.
xvi
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Globally, retirement income is an extremely important
component of every individual's life cycle. The
retirement income comes from one of the four key pillars
of support in old age: unfunded state pensions (that is,
transfers from the current working population via the tax
system), funded private pensions (that is, from savings
accumulated in private sector pension schemes), direct
private savings, and post-retirement work. For most
people in developed countries, the key sources of
retirement income are state and private pension schemes.
Good governance of the pension scheme is there crucial if
the pension schemes are to deliver their duty to their
contributors/members (World Bank, 2009).
The National Council for Voluntary Organisations (NCVO)
(2005) defines governance as ‘the systems and processes
concerned with ensuring the overall direction,
effectiveness, supervision and accountability of an
organisation. Governance involves the governing body of
the scheme; however nearly every scheme activity involves
the governing body to some extent. In the corporate
governance context the Organisation for Economic Co-
operation and Development (OECD) states that governance
1
provides the structure through which the objectives of
the company are set, and the means of attaining those
objectives and monitoring performance are determined
(OECD, 2004).
Global indices indicate that pension assets are important
to any economy. According to Alliance Global Investors
(2007), pension assets in Australia amount to AU$
1trillion (equivalent to 20% of the GDP), while in
Belgium pension assets amounted to 140 billion Euro in
2004. In 2003, the pension assets of Canada were worth
CAD 1.3 trillion (30% of the GDP), while in China pension
assets amounted to RMB 714 billion (24% of GDP) for same
year. The contribution of pension assets to the GDP of
the United Kingdom reached 14% (GDP 1.9 trillion) in
2003, while in the United States of America, the pension
assets had a value of US$ 14.5 trillion (37.7% of all
household financial assets). Closer to home, namely in
Kenya and South Africa, the pension assets had a value of
KSH 130 billion in 2006, which accounted for 30% of the
GDP (RBA 2007) and ZAR 1098 billion in 2004 (Alliance
Global Investors 2007) respectively. Pension funds are
therefore important contributors to the GDPs of countries
and should consequently be managed effectively.
Old age poverty rates are increasing in the 21st Century.
The Institute for Pension Supervisors (IFPS) (2008a)
estimates the old age poverty rates at 30.6% in Ireland,
2
26.9% in Australia, 23.6% in USA, 22% in Japan, 10.3% in
UK, 9.9% in German, 8.8% in France and 56% in Kenya with
other African countries recording much higher rates.
Research shows that old age poverty arises because 85% of
the World’s population over 65 years have no retirement
benefit at all (Holzman and Hinz 2001; Stewart and Yermo
2008).
In the Sub-Saharan Africa, less than 10% of the
population has a contributory pension arrangement to help
them save for their retirement (Palacios and Pallares-
Miralles 2000). Pension schemes contribute significantly
to the reduction in old-age poverty since a large
proportion of the incomes of retirees is derived from
their previous pension arrangements (Kakwani, Sun and
Hinz, 2006). According to the Alliance Global Investors
(2007), 75% of the elderly population relies on pension
income in South Africa while 82% of the retirees depend
on pension income in the East African countries. Pension
fund arrangements should therefore be encouraged to
enable the general population to save for retirement and
consequently reduce the old-age poverty levels.
In the Kenyan financial markets, pension fund industry is
a significant source of capital (Omondi, 2008). According
to Omondi, pension funds invested a sum of Ksh. 223
billion in the Kenyan financial sector in 2007 of which
Ksh. 77 billion (22% of the outstanding domestic debt)
3
was invested in government securities. Kakwani, et al
(2006) reported that retirement income accounts for 68%
of the total income of retirees in Kenya. Pensions
therefore play an important role in breaking
intergenerational poverty cycles and thus increase the
life expectancy of the elderly generation (Help Age
International 2006; Keizi, 2007). Pension funds are thus
significant institutional investors and must therefore be
managed efficiently to ensure they play their rightful
role in the country’s economy.
1.2 Statement of the Problem
Pension schemes play an important role in breaking
intergenerational poverty cycles and thus increase the
life expectancy of the elderly generation (Help Age
International 2006; Keizi, 2007). According to Brunner,
Hinz and Rocha (2008), the pension schemes in Kenya have
been characterized by rampant mismanagement and
misappropriation of funds that led to underperformance.
This has ultimately contributed to the low growth of the
pension schemes. In addition, the management strategies
employed by the Kenyan fund managers have been questioned
which points to the efficiency in application of
corporate governance practices in the pension schemes.According to RBA (2010) most of the pension schemes in Kenya
are grossly under-funded while others have poor investment
strategies resulting to lack of prudence in the investment
of pensioner’s funds. In addition, the gross financial
inefficiency that characterized most pension schemes in
4
Kenya have resulted to higher costs of operation, low
returns on investment and in extreme cases to the demise of
the funds (Bikker and Dreu, 2009). Low investment returns
and the closure of pension funds reduce the latter’s
contribution to the GDPs of countries.
While previous empirical reports (Keizi, 2006; Rajan,
2003; Barrientos, 2007) have emphasized on the reasons
for low coverage and suggestions to increase the coverage
of pension schemes, they fail to explore the
effectiveness of corporate governance practices and their
effects on the growth of pension schemes in Kenya. This
poses a knowledge gap which this study sought to fill.
1.3 Objectives of the Study
1.3.1 Broad objective
The broad objective of the study was to assess the
effects of corporate governance practices on the growth
of Pension Schemes in Kenya.
1.3.2 Specific Objectives
The study will address the following specific objectives;
5
i. To assess the effects of risk based internal control
on the growth of Pension Schemes in Kenya.
ii. To establish how the existing financial management
systems affect the growth of Pension Schemes in
Kenya.
iii. To establish the competencies of the management body
and its influence on the growth of Pension Schemes in
Kenya.
iv. To assess of the effects of the existing record
management systems on the growth of Pension Schemes
in Kenya.
v. To establish the extent to which compliance to the
existing regulatory framework affect the growth of
Pension Schemes in Kenya.
1.4 Research Questions
The study will seek to answer the following research
questions:
i. How does risk based internal control influence the
growth of Pension Schemes in Kenya?
ii. How do the existing financial management systems
affect the growth of Pension Schemes in Kenya?
6
iii. How do the competencies of the management body
influence the growth of Pension Schemes in Kenya?
iv. What are the effects of the existing record
management systems on the growth of Pension Schemes
in Kenya?
v. How does the compliance to the existing regulatory
framework affect the growth of Pension Schemes in
Kenya?
1.5 Significance of the Study
This study is useful to the Retirement Benefits Authority
since the recommendations made if adopted will help to
strengthen the governance of pension schemes and enhance
compliance to the set laws.
The pension schemes management may also benefit from this
study since the recommendations made will help in
designing strategy to enhance good governance as well as
increase the pension schemes growth and compliance with
the set rules and regulation.
The government will get policy direction in relation to
the pension sector from this study. It will be easy for
government policy makers to determine the next policy
requirements if the industry is to remain relatively
trouble free.
7
Researchers, scholars and academicians interested to
research further in areas of the pension schemes and
retirement benefits will also benefit from the results of
this study.
1.6 Scope of the Study
This study was limited to registered pension schemes in
Kenya. There are 1216 Pension schemes registered by RBA
in Kenya. The researcher sampled these Pension schemes
whereby one respondent from the sampled firms was
targeted. The respondents were the trustees, top manager
or senior supervisor of the Pension schemes who have key
information on the internal governance of the pension
scheme.
1.7 Limitations of the Study
The study was faced by the limitation of concealment of
information by the respondents. This was mitigated by
obtaining an introductory letter from the university as
well as a research permit detailing the purpose of the
study. The study was also faced by the limitation of
accessing the respondents since the study targeted the
trustees and/or top management who are mainly busy due to
their involvements in the running of the pension schemes.
To address this problem, the researcher purposively
sampled pension schemes whose senior managements and
trustees was available and were willingly accepting to
respond in the study. Therefore, those who were on annual
leave or out of office on official assignments or not
8
easily accessible due to the nature of their job
schedules were not included in the sample. In addition,
the researcher booked appointments with the concerned
respondents to increase the response rate.
9
CHAPTER TWO
LITERATURE REVIEW
2.1. Introduction
The purpose of the literature review is to set
the study subject in a broader context through
investigation of the relevant literature and other
sources. The chapter presents a review of the related
literature on the subject under study as presented by
various researchers, scholars, analysts and authors. The
review covers issues on global perspective on the growth
of pension schemes; risk based internal control of
pension schemes, financial management systems of pension
schemes, pension schemes compliance to regulatory
framework, record management systems of pension schemes,
competencies of managerial team of the pension schemes
and conceptual framework.
2.2 Theoretical Review
This study was based on theory of social security.
2.2.1 Theory of Social Security
The origins of social security theory are difficult to
pinpoint, but debates frequently return to Ancient Greece
(Steven, 2008). The theory posits that social elements
influence human nature. Human beings tend to feel secure
when they are institutionalized or organised into a
10
functional groups from which they can derive certain
benefits or satisfactions (Macionis, John and Plummer,
2005). This theory can be used to explain the operations
and pooling together of resources in pension schemes. The
key essence of a pension scheme is to bring together
individual little resources into a pool which can benefit
the members at old age. In many countries, social
security accounts for a large fraction of the government
budget. This is so, given that at any point in time, the
number of beneficiaries of the social security is smaller
than the number of contributors. If the size of social
security is larger, the greater is the proportion of
elderly people in the population, and the greater is the
inequality of pre-tax income within each generation.
Contemporary social protection financing systems face
three major challenges. They are said to be ill-equipped
to deal with the ageing of the population and with
globalization, and the financial burden placed on
contributors and taxpayers in all countries is said to
have reached the limits of affordability. According to
World Labour Report (2000), ageing - often misrepresented
as the key challenge for the financing of formal social
transfer systems - will pose a major problem if rapidly
ageing societies cannot contain overall social
dependency. However, dependency could be reduced
substantially through increased retirement ages and
greater labour force participation of women. An ageing
11
society need not face any crisis, as long as it is able
to provide jobs for its ageing workforce. After decades
of heavy investment in health care through social
protection, people should remain fit and healthy until
later in life and should be able to work longer. In
addition, modern and more flexible lifetime working
patterns should be able to accommodate employment
patterns needed by parents and older workers.
2.3 Empirical Review
According to OECD (2009), Pension schemes have grown
strongly in recent years in many OECD countries as well
as in emerging markets, both relative to GDP and compared
to banks. The rapid growth of pension funds in many
countries, and the stimulus they are providing to the
growth of capital markets, both suggest that their
activities as financial intermediaries merit considerable
attention. According to Bodie and Davis (2000), pension
funds’ growth is an important component since they
complement, and hence stimulate development of capital
markets, while acting as substitutes for banks.
Since withdrawal of funds is usually restricted or
forbidden, pension funds have long term liabilities,
allowing holding of high risk and high return
instruments. Accordingly, monies are intermediated by
pension funds into a variety of financial assets, which
include corporate equities, government bonds, real
estate, corporate debt (in the form of loans or bonds),
12
securitized loans, foreign holdings and money market
instruments and deposits as forms of liquidity (IOPS,
2007).
Davis (2005) defined Pension funds as forms of
institutional investor, which collect pool and invest
funds contributed by sponsors and beneficiaries to
provide for the future pension entitlements of
beneficiaries. They thus provide means for individuals to
accumulate saving over their working life so as to
finance their consumption needs in retirement, either by
means of a lump sum or by provision of an annuity, while
also supplying funds to end-users such as corporations,
other households (via securitized loans) or governments
for investment or consumption.
According to OECD (2009), pooling and diversification is
a fundamental characteristic of pension funds, given
their size and consequent economies of scale. In this
context, it is important to note that mutually
reinforcing development of securitization of individual
assets (such as loans), which has provided a ready supply
of assets in which pension funds may invest instead of
banks holding them on their balance sheets. In addition,
IOPS (2007) notes that participation costs to market
activity may also be of major importance in determining
the demand for services of pension funds.
13
According to Allen and Santomero (2008), pension schemes
have continued to grow because participation costs
complements that of transactions costs, and low
transactions costs. The basic idea is that there is a
fixed cost to learning about a company, and also an
ongoing cost to being active in the market and remaining
up-to-date, which may discourage individuals from holding
sufficient shares for adequate diversification.
Furthermore, the skills needed to undertake risk
management may be too costly for individuals to acquire
(Davis, 2005).
2.3.1 Risk based Internal Control of Pension Schemes
OECD guidelines outline requirements regarding the risk-
management systems of pension funds. According to OECD
(2004), Pension entities should have adequate risk
control mechanisms in place to address investment,
operational and governance risks, as well as internal
reporting and auditing mechanism. In addition, the OECD’s
Guidelines for Pension Fund Governance (OECD 2009)
address risk-based internal controls as part of the
governance mechanisms. According to OECD’s Guidelines,
there should be appropriate controls in place to ensure
that all persons and entities with operational and
oversight responsibilities act in accordance with the
objectives set out in the pension entity's by-laws,
statutes, contract, or trust instrument, or in documents
associated with any of these, and that they comply with
14
the law. Risk-management frameworks process does not
involve just one policy or procedure performed at a
certain point of time but should be continually operating
at all levels of the organisation, and involve all staff.
According to IOPS (2007), key part of a risk-based
approach to pension supervision involves the supervisory
authority transitioning from checking detailed compliance
requirements for the cooperation of pension funds to
reviewing the internal decision-making processes and
bodies of these funds. One of the main objectives of
risk-based supervision is to ensure sound risk management
at the institutional level taking into account both the
quality of risk management and the accuracy of the risk
assessment. Risk-based supervision allows much of the
responsibility for risk management to rest with the
individual pension fund companies themselves, while the
supervisory agency verifies the quality of the fund’s
risk management processes and adapts its regulatory
stance in response (OECD, 2009).
Brunner, Hinz and Rocha (2008) argues that some of the
decline in assets recently experienced by pension funds
around the world may well have been avoided through
stronger risk- management frameworks, as some funds
appear to have been exposed to instruments whose risk
profiles they did not fully understand. A sound risk
framework for pension funds is essential for their
15
prudent operation and the stability of the financial
system as a whole (Retirement Benefits Authority, 2003).
2.3.2 Financial Management Systems of Pension Schemes
Financial management system encompasses the two core
processes of finance operations and resource management
operations including management decisions. Financial
management encompasses accounting and financial
reporting, forecasting and budgeting (OECD, 2004).
Garbutt (1976) describes accounting as a discipline
concerned with the recording, analysis, and forecasting
of income and wealth of business and other activities.
All firms require finances to do their routine
(administrative), business transactions and investment
purposes. Garbutt (1976) further argues that a good
financial system should comprehensively cover all
operations of the organization. It should include
internal control measures that ensure resources use is
consistent with the policies; resources are safeguarded
against loss and misuse; and reliable data are obtained,
maintained, and disclosed in reports.
According to OECD (2004), appropriate internal controls
should be applied to all system inputs, processing, and
outputs. Organisations should have an efficient financial
system to ensure that the financial information generated
is timely and relevant to support management decision,
16
support budget formulation and execution functions and
monitor the system to ensure integrity of financial data.
Budgets are important for planning and control purposes.
Garbutt (1976) further describes a budget as a financial
or business plan that indicates incomes of a business
firm and apportioned expenditure to cater for the
operations over a given period of time.
Managers are supposed to adhere to the financial plan and
its one tool used for evaluation of business performance
in terms achieving set objectives while keeping within
the financial plan. Governance regulations should require
that pension funds have appropriate controls in place to
ensure that all persons or entities with operational and
oversight responsibilities act in the best interest of
plan members and beneficiaries.
2.3.3 Pension Schemes’ Compliance to Regulatory Framework
According to OECD (2004), Governance regulations have not
always been present in all countries. Most often, they
have been introduced as a response to cases of fraud or
misappropriation of pension assets. In the United
Kingdom, for example, the decision to enhance the
responsibility of trustees over pension fund management
and to increase their independence vis-à-vis employers
was mainly a response to the Maxwell scandal, in which
the Maxwell companies’ main pension fund lost a large
part of its assets as a result of lending to and
17
investment in insolvent companies linked to the late
Robert Maxwell. Similarly, the fiduciary standards
introduced by the 1974 ERISA law in the United States
were largely in response to various unhappy episodes of
fraud in pension fund management and of plan insolvency
caused by the bankruptcy of the plan sponsor.
In Kenya, the retirement benefits Act was enacted in the
year 1996 and the retirement benefits authority
established in 1997. Ever since the RBA has attempted to
reign in the players in the pensions sector by coming up
with a number of rules, regulations and requirements. The
members of the industry have been under pressure to
comply with these requirements (Retirement Benefits
Authority, 2003). The Retirement Benefits Act requires
each retirement benefits scheme to seek the services of a
registered fund manager. The manager, for the purposes of
the Retirement Benefits Act, is a company whose business
includes undertaking, pursuant to a contract or other
arrangement, the management of the funds and other assets
of a scheme fund for purposes of investment; providing
consultancy services on the investment of scheme funds;
and reporting or disseminating information concerning the
assets available for investment of scheme funds. The
managers must be licensed by the Retirement Benefits
Authority on an annual basis in order to carry out fund
management of pension scheme assets (RBA, 2009).
18
Governance regulations need to be designed under the
guidance of the overriding objective that pension funds
are set up to serve as a secure source of funds for
retirement benefits. The governance structure should
ensure an appropriate division of operational and
oversight responsibilities, and the accountability and
suitability of those with such responsibilities (Brunner,
Hinz and Rocha, 2008).
Pension entities are established in accordance to
statutes, by-laws, contract, or trust instrument. These
documents, sometimes together with associated material,
should define the legal form of the pension entity as
well as its internal governance structure and main
objectives. The main objectives of the pension entity
will vary depending on the type of plan that they
support. In defined contribution plans, the main
objective of the pension entity may be to invest the
pension assets in order to maximize risk-adjusted
returns. In defined benefit plans, the pension entity may
have several objectives, such as ensuring an adequate
match between the pension plan assets and its liabilities
and paying benefits upon the death or retirement of plan
members (RBA, 2009).
According to World Bank (1994), poor regulatory framework
has contributed to governance issues resulting to
contribution evasion among contributors. Some analysts
19
have considered contribution evasion to be primarily a
problem of defined benefit schemes with the replacement
of those schemes by defined contribution schemes solving
the problem.
A study done in Chile reporting compliance of 95 percent
(Chamorro 1992) is certainly, however, considerably
overstates compliance. In any case, the percentage of
workers in Chile not participating in the defined
contribution system is roughly equal to those not
participating in the defined benefit system it replaced.
Experience in Uruguay, Colombia and Peru also indicates
that switching to a defined contribution system from a
defined benefit system does not solve the problem of
contribution evasion. In all these countries, roughly
half of the workforce participates in the mandatory
defined contribution system (Burkhauser and Turner,
1995).
2.3.4 Record Management Systems of Pension Schemes
According to RBA (2009) a proper record management system
should be a fundamental daily activity of any pension
scheme and is relevant throughout a scheme’s lifecycle.
Incomplete and inaccurate records and poor financial
management controls can place significant risk on the
security of scheme assets. For example, it could result
in the over payment of benefits or misappropriation of
funds. According to Njoroge (2003), poor records can also
lead to increased costs at key events, for example scheme
20
buy outs, and these extra costs will fall either on
employers or reduce member benefits.
According to World Bank (2005), the risks associated with
inaccurate data, for example incorrect benefit
calculations, can have short and long-term implications
for schemes and beneficiaries. Therefore, throughout a
scheme’s lifecycle, trustees need to ensure that accurate
and complete membership data and records are maintained.
This includes basic information such as a member’s date
of birth, date of retirement, National Insurance number
etc.
Trustees must be confident that controls ensure data is
accurately recorded, regularly reviewed and all data
fields are complete. Inaccurate records could lead to the
wrong value being placed on benefits. This may have
consequences for calculating technical provisions,
benefits, and the levy. These may in turn have harmful
consequences for the employer.
According to RBA (2009) a framework to evaluate data
should be designed to provide an indication of whether
record-keeping needs further consideration in the context
of risks; measurement of data accuracy is not an end in
itself. Where trustees are aware of or have identified
data deficiencies they should develop a continuous
improvement strategy in relation to scheme records.
Trustees should also produce a data improvement plan,
21
covering a reasonable time frame, with specific data
improvement deliverables which can be monitored and
tracked.
2.3.5 Competencies of Managerial Team of the Pension
Schemes
Managerial competencies are critical in ensuring good
administration and effective governance of pension
schemes. According to Njoroge (2003), the management of
the pension schemes has always been the employers of the
pensioner/contributors of the Pension schemes. This
brings in conflict of interest in the management of
pension scheme funds.
In Kenya, the employer is always the sponsor of the fund.
This implies that the employer is responsible for the
appointment of auditor, and actuaries, including the
trustees. This gives employers access to funds of the
scheme. This has always rendered the scheme to abuse by
the employer. This has led to a situation whereby the
pension scheme is not able to meet its obligations to the
pensioners. Effective corporate governance ensures that
legislative and regulatory requirements are met, that the
provisions of the trust deed and rules are complied with,
and that members receive the level of benefits and
service to which they are entitled (Burkhauser and
Turner, 1995).
22
According to the Retirement Benefits Authority (2003),
every pension fund should have a competent governing body
or administrator vested with the power to administer the
pension fund and who is ultimately responsible for
ensuring the adherence to the terms of the arrangement
and the protection of the best interest of plan members
and beneficiaries. The responsibilities of the governing
body should be consistent with the overriding objective
of a pension fund which is to serve as a secure source of
retirement income.
According to World Bank (1994), mechanisms are needed to
ensure that the pension funds are managed by competent
personnel. The internal staff as well as the external
service providers (such as those providing consultancy,
actuarial analysis, asset management, and other services
for the pension entity) should have the required
qualification for effective management of the pension
funds.
Risks to members from poor governance are often higher
during periods of change to the employer(s), for example
during mergers, takeovers or insolvencies. At such times
the focus may be on other areas of the business, so it is
important to have competent trustees who will ensure that
members’ records are preserved and their interests
safeguarded at these times (Ngai, 2009).
23
2.4 Summary of the Review and Research Gaps
This chapter has reviewed literature on corporate
governance of the pension schemes both locally and
internationally. The review has shown that good
governance practices contribute significantly to the
success of pension schemes in both private and public
sector. The challenge has been to institutionalize
reforms and introduce best governance practices that will
guarantee effective management and ultimately promote the
growth of pension schemes in Kenya. However, many pension
schemes are grossly mismanaged while others are under-
financed hence not able to meet their financial
obligation (RBA 2009). Studies on pension schemes in
Kenya have focused on increasing the membership,
efficiency of the funds and institutionalization of
reforms but have failed to address issues of corporate
governance practice and their effects on the growth. This
posses a knowledge gap which this study sought to fill.
2.5 Conceptual Framework
Figure 2.1 shows the conceptualization of the
relationship between the dependent and the independent
variables.
24
Independent variables
Dependent
variables
Affects
Figure 2.1: The Conceptual Framework
Source: Researcher (2013)
The conceptual framework is based on the corporate
governance practices as the independent variables. These
includes: risk based internal control, financial
management systems, compliance to the existing regulatory
framework, record management systems, and competencies of
the management body. These influence the dependent
variable which is growth of the Pension Schemes.
Financial Management
Risk basedinternal
Competencies ofthe management
Record Management
Growth of Pension Schemes Profitability Membership numbers Financing Customer/membersatisfaction
Complaints levels
Compliance to the Regulatory Framework
25
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter details the methodological approaches and
procedures that were used in conducting this study. The
key sections discussed in this chapter include; the
research design, the target population, the sampling
techniques, data collection instruments, sample size and
the techniques used in data analysis.
3.2 Research Design
The study adopted a descriptive research design.
Descriptive research includes surveys and fact-finding
enquiries of different kinds. The major purpose of
descriptive research design is the description of the
state of affairs as it exists at present (Kothari, 2004).
The researcher applied this design to investigate the
current situation in relation to the effects of corporate
26
governance practices on the growth of Pension Schemes in
Kenya.
3.3 Target Population
According to Mugenda and Mugenda (2003), a target
population refers to all the members of a population to
which the researcher wishes to generalize the results of
the research. The target population for this study
included all the 1216 pension schemes registered by the
Retirement Benefits Authority (RBA) by June 2013. The
respondents were the trustees, the top management and/or
senior supervisor of the pension schemes. The trustees,
the top management and/or senior supervisor were selected
because they are responsible for implementation of
corporate governance practices, management of the pension
schemes as well as ensuring compliance with the statutory
requirements as defined by the relevant legal statutes.
3.4 Sampling Techniques
A list of all the 1216 registered pension schemes in
Kenya was obtained which assisted in the sampling
process. Systematic random sampling was used to select
the target pension schemes. This technique was
appropriate because it gives all pension schemes equal
probability of being chosen and hence reduce biases.
According to Kothari (2003), an optimum sample is the one
that fulfills the requirements of efficiency,
representativeness, reliability and flexibility. This
sample should be in a range of 10%-30%. A sample of 10%
27
of all the registered pension schemes was drawn from the
target population to satisfy these requirements of
optimality and representativeness.
3.4.1 Sampling Frame
Based on the 10% sampling percentage as earlier
described, a sample size of 122 respondents (That is; 10%
of 1216 registered pension schemes) was obtained. One
respondent, that is, the trustees, the top manager or
senior supervisor from each of sampled schemes were
targeted. Using systematic random sampling, the first
pension scheme was selected from the list of registered
pension schemes, then the others were selected at an
interval of ten (10th pension scheme) until the sample
size of 122 respondents was achieved.
3.5 Data Collection Instruments
The study utilized both primary and secondary data.
Primary data was collected by use of questionnaires that
was administered to the trustees or senior management of
the sampled Pension Schemes. The questionnaire consisted
of both open-ended and closed questions covering issues
on all the variables of study. The open-ended questions
permitted free responses from the respondents, without
providing or suggesting any structure for the replies.
The closed ended questions enabled the responses of the
respondents to be limited to stated alternatives. These
28
alternatives were designed in such a way as to be simple
for the respondents to understand. The questionnaires was
administered through drop and pick method. The secondary
data was collected from the RBA publications, pension
schemes publications, journals and peer reviews.
3.5.1 Validity of the Instruments
Research instrument was pre-tested using a selected
sample of the target population in order to establish its
validity and the level of suitability. The procedure that
was used in pre-testing was similar to that which was
used in the actual study only that the sample was small
(about 1% of the target population=12 pension schemes).
This pre-testing was necessary because it helped to
detect wrong questions, little space, unclear direction
and clustered questions. Also the vague questions were
revealed and these were properly rephrased.
3.5.2 Reliability of the Instruments
Reliability measures the internal consistency of the
inter-item of the research instrument used in the study.
In this study, the Cronbach alpha reliability coefficient
for the pre-tested questionnaires was computed for all
the variables of the study. Cronbach’s alpha reliability
coefficient normally ranges between 0 and 1. The closer
Cronbach’s alpha coefficient is to 1.0 the greater the
29
internal consistency of the items, hence the higher the
reliability of the study instruments.
The purpose of reliability assessment was to assess the
internal consistency of the data collected by the
research questionnaire. In order to measure this,
Cronbach Alpha (α) was computed for each of the variable
to assess the reliability of the data collected.
According to Leedy and Ormrod (2003), a Cronbach Alpha
value greater than 0.6 is regarded satisfactory for
reliability assessment.
Table 3.1: Reliability Assessment
Independent Variables of Study
Variables
Cronbach Alpha (α)
Values
30
Risk based internal control .8970
Financial management systems .8328
Compliance to the existing regulatory framework
.8625
Record management systems .7149
Competencies of the managementbody
.9851
Dependent variable
Growth of the Pension Schemes .7610
No. of Cases 105
Source: (Pre-testing, 2013)
As can be seen in Table 4.2, the Cronbach Alpha value for
all the variables ranged from 0.7149 to 0.9851 which was
higher than the acceptable value of 0.6 according to
Leedy and Ormrod (2003). It was therefore concluded that
the data collected for all the variables was reliable for
the subsequent stages of analysis.
3.6 Data Collection Techniques
An introductory letter from the Kenyatta University and
permission to carry out research in the target
organization was obtained to enable the researcher to
administer questionnaires to the target population. The
researcher then re-assured the respondents about the
confidentiality of their feedback. The questionnaires
were administered during the official working hours for
all the respondents using drop and pick method. This was
31
necessary to increase the response rate. The data
collection was scheduled to take one month.
3.7 Data Processing and Analysis
The collected data was checked, edited and coded as soon
as the questionnaires were returned. Analysis of the raw
data was then done using statistical package for social
sciences (SPSS) to make statistical inferences. Both
descriptive and inferential statistical techniques were
utilized. The descriptive statistics used included;
frequencies, means, standard deviations, percentages
while the inferential statistics included; Pearson
correlation analysis. In addition, the qualitative data
was analyzed using content analysis techniques. The data
was presented through the use of tables, bar charts and
pie charts.
32
CHAPTER FOUR
RESEARCH FINDINGS AND DISCUSSIONS
4.1 Introduction
This chapter contains the data analysis, results and the
interpretations. The chapter is organised based on the
objectives of the study. Both descriptive statistics such
as Mean, Percentages, Frequencies, Standard Deviation as
well as inferential statistics such as Pearson
Correlation analysis were utilized.
4.2 Analysis of the Response Rate and Demographic
Information
4.2.1 Analysis of the Response Rate
The study targeted the pension schemes registered by RBA
in Kenya and the response rate achieved in the study is
as shown in Table 4.1.
33
Table 4.1: Analysis of the Study Response Rate
Responses Values Percentages
Administered
questionnaires
122 100.0%
Unusable, unreturned & disqualified questionnaires
17 13.9%
Completed usable
questionnaires
105 86.1%
Source: (Survey Data, 2013)
As can be seen in Table 4.1, a total of 122
questionnaires were administered to the respondents,
resulting in an 86.1% final response rate. Out of these,
17 questionnaires representing 13.9% were disqualified
due to incompletion, not being returned or those
unwillingly to participate in the study. The analysis of
the results is thus based on 105 questionnaires. Sekaran
(2003) is of the view that a minimum sample size of 30 to
a maximum of 500 is sufficient and acceptable for a
scientific investigation. During data cleansing and
verification process of this study, the questionnaires
with omissions and errors were disregarded as can be seen
in Table 4.1. The data cleansing and verification
procedure ensured that all quality standards were met
(Kerlinger, 2004).
4.2.2 Analysis of Demographic Information
34
The study sought to establish the background information
of the sampled respondents. Key attributes investigated
included: Gender, highest level of education, type of the
pension scheme and respondents’ designation
Table 4.2: Analysis of the Demographic Information
DemographicInformation
Categories
Frequen
cy (n)
Percent
age
(%)
Gender Male 75 71.4Female 30 28.6
Highest level of
education
College 4 3.8Undergraduat
e
44 41.9
Post
graduate
57 54.3
Type of the Pension
Scheme
Public
Sector
50 47.6
Private
sector
55 52.4
Respondents
designation
Trustee 51 48.6Top
management
40 38.1
supervisors 14 13.3Overall Total (N) 105 100.0
Source: (Survey Data, 2013)
35
The findings show that majority of the respondents
(71.4%) were male while 28.6% were female. Majority of
the respondents were degree holders with Post Graduate
accounting for 54.3% while Undergraduate accounted for
41.9%. The findings further show that most Pension
Schemes sampled were in Private sector (52.4%) with
public sector accounting for 47.6%. in addition, the
findings show that most respondents were Trustees (48.6%)
with top management and supervisors accounting for 38.1%
and 13.3% respectively. This information is shown in
Table 4.2.
4.3 Risk Based Internal Control
The first objective of the study sought to assess the
effects of risk based internal control on the growth of
Pension Schemes in Kenya.
4.3.1 Issues on Risk based Internal Control
The respondents were presented with statements on Risk
based Internal Control issues thought to influence the
growth of the pension scheme and were required to rate
the extent to which they agreed or disagreed with the
listed statements. A five-point likert scale comprising
of strongly agree, Agree, neutral, disagree, strongly
disagree was used and the findings presented in Table
4.3.
36
Table 4.3: Analysis of Risk based Internal Control
Aspects
Strong
ly
Disagr
ee
Disagr
ee
Not
sure Agree
Strong
ly
Agree
% % % % %
37
The scheme has
adequate risk
control mechanism
to address all
investment risks
16.2% 13.3% 7.6%45.7
%
17.1
%
The scheme has
adequate risk
control
mechanisms to
address
operational risks
8.6% 15.2% 2.9%48.6
%
24.8
%
The scheme has
adequate risk
control mechanism
to address
governance risk
8.6%7.6
%12.4%
41.0
%
30.5
%
The scheme has
adequate risk
control mechanism
for internal
reporting and
auditing
11.4
%
4.8
%16.2%
32.4
%
35.2
%
The scheme has
internal control
to ensure all
persons and
entities act in
10.5
%
16.2% 28.6
%
44.8
%
38
accordance with
the lawThe scheme has
sound framework
for stability of
pension funds
11.4
%10.5% 7.6%
35.2
%
35.2
%
Source: (Survey Data, 2013)
The findings in Table 4.3 show that most of the
respondents agreed with the following statements; The
scheme has adequate risk control mechanism to address all
investment risks, the pension scheme has adequate risk
control mechanisms to address operational risks, the
scheme has adequate risk control mechanism to address
governance risk, the scheme has adequate risk control
mechanism for internal reporting and auditing, the scheme
has internal control to ensure all persons and entities
act in accordance with the law and the scheme has sound
framework for stability of pension funds as accounted by
the 62.8%,73.4%,71.5%, 67.6%, 73.4% and 70.4% (strongly
agree and agree) cumulative responses respectively. This
shows that the pension schemes had adequate risk control
mechanisms to address operational risks, governance risk,
internal reporting and auditing. Further, the pension
schemes had internal control to ensure all persons and
entities act in accordance with the law and had sound
framework for stability of pension funds. These issues
39
promoted the growth of the pension schemes in the
country. These findings are consistent with the OECD
report (2004) which stated that pension entities should
have adequate risk control mechanisms in place to address
investment, operational and governance risks, as well as
internal reporting and auditing mechanism. In addition,
IOPS (2007) argued that key part of a risk-based approach
to pension supervision involves the supervisory authority
transitioning from checking detailed compliance
requirements for the cooperation of pension funds to
reviewing the internal decision-making processes and
bodies of these funds.
4.4 Financial Management Systems
The second objective of the study sought to establish how
the existing financial management systems affect the
growth of Pension Schemes in Kenya.
4.4.1 Financial Management Systems
The respondents were presented with statements related to
financial management systems and were required to rate
the extent to which they agreed or disagreed on how they
affected the growth of Pension Schemes in Kenya. A five-
point likert scale comprising of strongly agree, Agree,
neutral, disagree, strongly disagree was used whereby the
means and the standard deviations were computed. The key
to five point likert scale included; strongly disagree
(SD): 1.0 – 1.49, disagree (D): 1.5 – 2.49,
40
Undecided/Neutral (U): 2.5– 3.49, Agree (A): 3.5 – 4.49
and Strongly Agree (SA): 4.5 – 5. The responses were
interpreted and the findings presented in Table 4.4
below.
Table 4.4: Analysis of Financial Management Systems of
the Pension Schemes
N Mean
Std.Deviatio
nMembers receive incorrect benefit on transfers, death or retirement 105 1.68 1.290
Members receive inaccurate information which may lead to in appropriate decisions.
105 3.71 1.141
There is usually non- or late payment of contributions, which lead to delay or inaccuracies in payment of benefits
105 3.99 1.362
Requires a better financial management systems to be in place 105 3.92 1.591
Members contribution is in sufficient to run effectively the affairs of this scheme
105 4.09 1.367
Existing IT system is not sufficient to handle the financial issues effectively
105 4.24 1.438
Source: (Survey Data, 2013)
The findings in Table 4.4 show that most of the
respondents agreed with the following statements; Members
receive inaccurate information which may lead to
inappropriate decisions, there is usually non- or late
payment of contributions, which lead to delay or
41
inaccuracies in payment of benefits, requires better
financial management systems to be in place, members
contribution is insufficient to run effectively the
affairs of the scheme and existing IT system is not
sufficient to handle the financial issues effectively as
accounted by the means of 3.71, 3.99, 3.92, 4.09 and
4.24 respectively. The findings further show that most
respondents disagreed that members receive incorrect
benefit on transfers, death or retirement (1.68). This
shows that members of the pension scheme receive
inaccurate information which may lead to inappropriate
decisions, there is usually non- or late payment of
contributions, which lead to delay or inaccuracies in
payment of benefits, requires a better financial
management systems to be in place, members contribution
is insufficient to run effectively the affairs of the
scheme and existing IT system is not sufficient to handle
the financial issues effectively. These issues need to be
addressed since they affect negatively the growth of
pension schemes in the country. These findings were not
consistent with Garbutt (1976) who argues that a good
financial system should comprehensively cover all
operations of the organization. It should include
internal control measures that ensure resource use is
consistent with the policies; resources are safeguarded
against loss and misuse; and reliable data are obtained,
maintained, and disclosed in reports.
42
4.4.2 Effectiveness of Financial Management Systems
The study sought to establish the effectiveness of the
financial management systems used in management of the
pension schemes. The findings are shown in Figure 4.1
Source: (Survey Data, 2013)
Figure 4.1: Effectiveness of Financial Management Systems
The findings show that the financial management systems
used in management of the pension schemes was ineffective
as accounted by 48.6%. This means that the pension
schemes need to invest in effective financial management
systems to secure all financial transactions. These
findings do not agree with OECD report (2004) which
concedes that organisations should have an efficient
financial system to ensure that the financial information
generated is timely and relevant to support management
43
decision, support budget formulation and execution
functions and monitor the system to ensure integrity of
financial data.
4.5 Regulatory Framework Compliance
The third objective of the study sought to establish the
extent to which compliance to the existing regulatory
framework affect the growth of Pension Schemes in Kenya.
4.5.1 Pension schemes Compliance to the existing
regulation
The respondents were presented with statements on
laws/regulatory issues thought to influence the growth of
the pension scheme and were required to rate the extent
to which they agreed or disagreed with the listed
statements. A five-point likert scale comprising of
strongly agree, Agree, neutral, disagree, strongly
disagree was used and the findings presented in Table
4.5.
Table 4.5: Pension Schemes’ Compliance to the Regulatory Framework
strongly disagree
disagree
Not sure Agree
Strongly Agree
% % % % %Regulatory system has greatly helped to increase members
7.6% 2.9% 14.3% 18.1% 57.1%
44
confident with this pension schemeExisting laws, regulation hinder prohibiteffective governance of this scheme
31.4% 37.1% 7.6% 8.6% 15.2%
pension scheme has had some cases of non-compliance withRBA rules
35.2% 20.0% 5.7% 22.9% 16.2%
Fees charged byRBA on compliance contribute to non-compliance by the schemes
32.4% 21.9% 18.1% 11.4% 16.2%
Pension scheme does not complywith the rules on appointment of top management
53.3% 23.8% 8.6% 14.3%
Source: (Survey Data, 2013)
The findings in Table 4.5 show that most of the
respondents agreed that regulatory system has greatly
helped to increase members confidence with the pension
schemes as accounted by the 75.2% (strongly agree and
agree) cumulative responses respectively. In addition,
most of the respondents disagreed with the following
statements; Existing laws, regulation hinder prohibit
effective governance of this scheme, pension scheme has
had some cases of non-compliance with RBA rules, Fees
45
charged by RBA on compliance contribute to non-compliance
by the schemes, Pension scheme does not comply with the
rules on appointment of top management accounted by the
68.5%, 55.2%, 54.3% and 77.1% (strongly disagree and
disagree) cumulative responses respectively. This shows
that the pension schemes had regulatory system which had
greatly helped to increase members confidence, Existing
laws, regulation does not prohibit effective governance
of the scheme, pension schemes had no cases of non-
compliance with RBA rules, Fees charged by RBA on
compliance did not contribute to non-compliance by the
schemes, Pension scheme complies with the rules on
appointment of top management. These were positive
attributes that play a major role in the growth of the
pension schemes. These finding agree with Brunner, Hinz
and Rocha (2008) who argued that governance regulations
need to be designed under the guidance of the overriding
objective that pension funds are set up to serve as a
secure source of funds for retirement benefits. The
governance structure should ensure an appropriate
division of operational and oversight responsibilities,
and the accountability and suitability of those with such
responsibilities. The findings also agree with RBA (2009)
that the pension entity may have several objectives, such
as ensuring an adequate match between the pension plan
assets and its liabilities and paying benefits upon the
death or retirement of plan members. The World Bank
(1994) also concedes that poor regulatory framework has
46
contributed to governance issues resulting to
contribution evasion among contributors.
4.6 Record Management Systems
The fourth objective of the study sought to assess of the
effects of the existing record management systems on the
growth of Pension Schemes in Kenya.
4.6.1 Assessment of the Record Management System Issues
The respondents were presented with statements on record
management system issues thought to influence the growth
of the pension scheme and were required to rate the
extent to which they agreed or disagreed with the listed
statements. A five-point likert scale comprising of
strongly agree, Agree, neutral, disagree, strongly
disagree was used and the findings presented in Table
4.6.
Table 4.6: Analysis of the Record Management System
Issues
Strongly
Disagree
Disagree
NotSure
Agree
Strongly
Agree% % % % %
Inaccurate records leadto the wrong value being placed on benefits
48.6% 28.6% 0.0% 8.6% 14.3%
Members receive 49.5% 36.2% 0.0% 8.6% 5.7%
47
inaccurate information resulting to inappropriate decisionsScheme administrator has access to all members records
5.7% 16.2% 2.9% 28.6% 46.7%
Poor record management has led to consequencesin calculating technical provisions
34.3% 38.1% 8.6% 2.9% 16.2%
A lot of time is neededto rectify simple errors that can be easily avoided
39.0% 30.5% 2.9% 14.3% 13.3%
A lot of time is required in rectifying apparently simple errors in the system
40.0% 27.6% 13.3% 8.6% 10.5%
Source: (Survey Data, 2013)
The findings in Table 4.6 show that most of the
respondents agreed that scheme administrator has access
to all members records as accounted by the 75.3%
(strongly agree and agree) cumulative responses
respectively. In addition, most of the respondents
disagreed with the following statements; Inaccurate
records lead to the wrong value being placed on benefits,
members receive inaccurate information resulting to
inappropriate decisions, poor record management has led
to consequences in calculating technical provisions, A
lot of time is needed to rectify simple errors that can
be easily avoided, as accounted by the 77.2%, 85.7%,
72.4%, 69.5% and 67.6% (strongly disagree and disagree)
cumulative responses respectively. This shows that the
48
pension schemes had accurate records and that wrong value
were not being placed on benefits, members receive
accurate information, proper record management hence no
consequences in calculating technical provisions, and a
lot of time was not needed to rectify simple errors. This
implies that the pension schemes had accurate and a
proper record management in place and this was
contributing to the growth of the pension schemes. These
findings agree with the RBA (2009) that proper record
management system should be a fundamental daily activity
of any pension scheme and that incomplete and inaccurate
records and poor financial management controls can place
significant risk on the security of scheme assets. For
example, it could result in the over payment of benefits
or misappropriation of funds. The findings also agrees
with Njoroge (2003) that poor records can also lead to
increased costs at key events, for example scheme buy
outs, and these extra costs will fall either on employers
or reduce member benefits. In addition, World Bank (2005)
position that the risks associated with inaccurate data,
for example incorrect benefit calculations, can have
short and long-term implications for schemes and
beneficiaries.
4.7 Competencies of the Management Body
The fifth objective of the study sought to establish the
competencies of the management body and its influence on
the growth of Pension Schemes in Kenya.
49
4.7.1 Assessment of the Competencies of the Management of
Pension Schemes
The respondents were presented with statements thought to
affect the growth of the pension scheme and were required
to rate the extent to which they agreed or disagreed with
them. A five-point likert scale comprising of strongly
agree, Agree, neutral, disagree, strongly disagree was
used and the findings were presented in Table 4.7 below.
Table 4.7: Results of the Analysis of Management Body
Competencies
strongly disagree
disagree
Not sure Agree
Strongly Agree
% % % % %The management are skilled to manage conflicts of interest
16.2% 8.6% 2.9% 32.4% 40.0%
All management have received training relevant to their job
10.5% 20.0% 5.7% 34.3% 29.5%
pension scheme has competent
2.9% 2.9% 10.5% 51.4% 32.4%
50
top managersmanagement are competent in resource allocation
14.3% 8.6% 12.4% 36.2% 28.6%
The board of trustees are well suited to their job
2.9% 2.9% 24.8% 30.5% 39.0%
board members have no good working relations with the management
54.3% 26.7% 5.7% 5.7% 7.6%
Source: (Survey Data, 2013)
The findings in Table 4.7 show that most of the
respondents agreed with the following statements; The
management are skilled to manage conflicts of interest,
All management have received training relevant to their
job, pension scheme has competent top managers,
management are competent in resource allocation and the
board of trustees are well suited to their job as
accounted by 72.4%, 63.8%, 83.8%
64.8% and 69.5% (Strongly agree and agree) cumulative
responses respectively. The findings further show that
the respondents disagreed that board members have no
good working relations with the management as accounted
by the 81.0% (strongly disagree and disagree) cumulative
responses respectively. This show that pension schemes’
management were skilled to manage conflicts of interest,
were well trained and competent in their job especially
on resource allocation. In addition, the boards of
51
trustees were also well suited to their job and had good
working relations with the management. This was
contributing to the growth of the pension schemes in the
country.
Managerial competencies are critical in ensuring good
administration and effective governance of pension
schemes. According to Njoroge (2003), the management of
the pension schemes has always been the employers of the
pensioner/contributors of the Pension schemes. This
brings in conflict of interest in the management of
pension scheme funds. These findings are consistent with
the RBA (2003) which asserts that every pension fund
should have a competent governing body or administrator
vested with the power to administer the pension fund and
who is ultimately responsible for ensuring the adherence
to the terms of the arrangement and the protection of the
best interest of plan members and beneficiaries. In
addition, the World Bank (1994) concedes that mechanisms
are needed to ensure that the pension funds are managed
by competent personnel.
4.7.2 Adequacy of the Management Team Training
The respondents rated the adequacy of the training or the
competencies of the management of the pension scheme and
the findings were as shown in Figure 4.2.
52
Source: (Survey Data, 2013)
Figure 4.2: Management Team Training Adequacy
The findings in Figure 4.2 shows that most of the
management staff of the pension schemes were adequately
trained (51.4%) with the necesary competencies required
to perform their job. This means that the management of
the pension schemes were playing a crucial role in the
performance and ultimate growth of the pension schemes.
The findings agrees with Ngai (2009) who argued that it
is important to have competent trustees and management
team that ensure that members’ records are preserved and
their interests safeguarded at all times.
53
4.8 Growth of the Pension Schemes
4.8.1 Overall Growth of the Pension Schemes
The respondnts rated the overall growth of the pension
schemes and the results are as shown in Figure 4.3.
Source: (Survey Data, 2013)
Figure 4.3: Overall Growth of the Pension Schemes
The finding in Figure 4.3 shows that most of the
respondents rated the overall growth as fair as accounted
by 52.4%. This means that there is room for improvement
in relation to the growth of the pension schemes in the
country.
4.8.2 Satisfaction with the growth of the pension schemes
54
The study sought to asses the respondents level of
satisfaction with the growth of the pension schemes an
the results are as shown in Figure 4.4
Source: (Survey Data, 2013)
Figure 4.4: Satisfaction with the Growth of the Pension
Schemes
The finding in Figure 4.4 shows that most of the
respondents were dissatisfied with the current level and
rate of growth of pension schemes as accounted by 59%.
This shows the need to address issues that constrain the
growth of the pension schemes.
4.8.3 Correlation Analysis among Study Variables
55
In establishing nature and the direction of the relationship between
the independent and dependent variables of the study, a Pearson
Correlation Analysis was performed whereby the correlation
coefficient (r) was computed. The Correlation coefficient for
each of the independent variable was computed and the
results shown below.
Table 4.8: Results of the Pearson Correlation Analysis
Variables
Growth of
Pension
Schemes
Deductio
nsRisk based
Internal
Control
Correlation Coefficient .163(*)
Positivecorrelation
Sig. (P-value) .007 N 105
Financial
Management
Systems
Correlation Coefficient -.077
Negativecorrelation
Sig. (P-value) .438 N 105
Compliance
to
Regulatory
Framework
CorrelationCoefficient .336(*)
Positivecorrelation
Sig. (P-value) .000 N
105
Record
management
system
Correlation Coefficient .066(*)
Positivecorrelation
Sig. (P-value) .004 N 105
Competencie Correlation .153(*)
56
s of the
Management
Body
Coefficient Positivecorrelation
Sig. (P-value) .012 N 105
Correlation is significant at the 0.05 level.
Source: (Survey Data, 2013)
The result of Pearson Correlations analysis shows a
positive correlation coefficient of 0.163, 0.336, 0.066
and 0.153 among Growth of Pension Schemes and risk based
internal control, compliance to regulatory framework,
competencies of the management body and record management
system respectively which were statistically significant
(P<0.05). In addition, Financial Management Systems was
found to have a negative correlation (-0.077) which is
not statistically significant with the Growth of Pension
Schemes. This shows that the Growth of Pension Schemes is
positively correlated with the risk based internal
control, compliance to regulatory framework, competencies
of the management body and record management system. This
further shows a direct linear relationship among these
variables. This means that to promote the growth of
Pension Schemes, there is need to address the issues on
Financial Management Systems since they were affecting
negatively the growth of Pension Schemes in Kenya.
57
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This chapter presents the conclusions and recommendations
of the entire project. The main issues presented in this
chapter include; the summary of the findings,
58
conclusions, recommendations and suggestions for further
research.
5.2 Summary
The pension schemes in Kenya have been characterized by
rampant mismanagement and misappropriation of funds that
led to underperformance. This has ultimately contributed
to the low growth of the pension schemes. The gross
financial inefficiency that characterized most pension
schemes in Kenya have resulted to higher costs of
operation, low returns on investment and in extreme cases
to the demise of the funds. Therefore, this study sought
to assess the effects of corporate governance practices
on the growth of Pension Schemes in Kenya. A total of 122
questionnaires were administered to the respondents.
However, the study achieved 86.1% response rate. In
addition, the study compute Cronbach Alpha to establish
the reliability of the data collected. The findings show
that the Cronbach Alpha values for all the variables
ranged were higher than the minimum acceptable value of
0.6. It was therefore concluded that the data collected
for all the variables was reliable for the subsequent
stages of analysis.
The first objective of the study sought to assess the
effects of risk based internal control on the growth of
Pension Schemes in Kenya. The findings showed that the
pension schemes had adequate risk control mechanisms to
address operational risks, governance risk, internal
59
reporting and auditing. Further, the pension schemes had
internal control to ensure all persons and entities act
in accordance with the law and had sound framework for
stability of pension funds. These issues positively
affected the growth of the pension schemes in the
country.
The second objective of the study sought to establish how
the existing financial management systems affect the
growth of Pension Schemes in Kenya. The findings showed
that members of the pension scheme receive inaccurate
information which may lead to in appropriate decisions,
there was usually non- or late payment of contributions,
which lead to delay or inaccuracies in payment of
benefits, members contribution is insufficient to run
effectively the affairs of the schemes and existing IT
system is not sufficient to handle the financial issues
effectively. These issues need to be addressed since they
affect negatively the growth of pension schemes in the
country.
In addition, the study established that the financial
management systems used in management of the pension
schemes was ineffective hence the need to invest in an
effective financial management system to secure all
financial transactions.
The third objective of the study sought to establish the
extent to which compliance to the existing regulatory
60
framework affected the growth of Pension Schemes in
Kenya. The findings showed that the pension schemes had a
regulatory framework system which had greatly helped to
increase members confidence, the existing laws and
regulation does not prohibit effective governance of the
scheme, pension schemes had no cases of non-compliance
with RBA rules, Fees charged by RBA on compliance did not
contribute to non-compliance by the schemes, Pension
schemes comply with the rules on appointment of top
management. These were positive attributes that played a
major role in the growth of the pension schemes.
The fourth objective of the study sought to assess the
effects of the existing record management systems on the
growth of Pension Schemes in Kenya. The findings showed
that the pension schemes had accurate records and that
wrong value were not being placed on benefits, members
received accurate information, proper record management
hence no consequences in calculating technical provisions
and a lot of time was not needed to rectify simple
errors. This implies that the pension schemes had
accurate and a proper record management system in place
and this was positively contributing to the growth of the
pension schemes.
The fifth objective of the study sought to establish the
competencies of the management body and its influence on
the growth of Pension Schemes in Kenya. The findings
showed that the pension schemes’ management was skilled
61
to manage conflicts of interest, they were also well
trained and competent in their job especially on resource
allocation. In addition, the boards of trustees were
found to be well suited to their job and had good working
relations with the management. This was contributing to
the growth of the pension schemes in the country.
Additionally, the training or the competencies of the
management of the pension schemes was found to be
adequate. This implies that the management of the pension
schemes had the necesary competencies needed to perform
their job, and were playing a crucial role in the
performance and ultimate growth of the pension schemes.
The finding showed that most of the respondents rated the
overall growth of pension schemes as fair. This shows
that there is room for improvement in the growth of the
pension schemes in the country. In addition, the study
showed that most of the respondents were dissatisfied
with the current level and rate of growth of pension
schemes. This shows that there is need to address issues
that constrain the growth of the pension schemes in
Kenya.
5.3 Conclusion
The aim of this study was to assess the effects of
corporate governance practices on the growth of Pension
Schemes in Kenya. It can therefore be concluded that the
62
pension schemes have adequate risk control mechanisms to
address operational risks, governance risk, internal
reporting and auditing. Further, the pension schemes have
internal control to ensure all persons and entities act
in accordance with the law and have a sound framework for
stability of pension funds. These affected positively the
growth of the pension schemes in the country.
The members of the pension scheme received inaccurate
information which may lead to inappropriate decisions,
there is usually late payment of contributions, which
lead to delay or inaccuracies in payment of benefits,
members’ contribution is insufficient to run effectively
the affairs of the schemes and existing IT system is not
sufficient to handle the financial issues effectively.
These affected negatively the growth of pension schemes
in the country. In addition, the financial management
systems used in management of the pension schemes is
ineffective in handling all financial transactions.
The pension schemes have a regulatory framework system
which has greatly helped to increase members confidence,
the existing laws and regulation does not prohibit
effective governance of the scheme, pension schemes have
no cases of non-compliance with RBA rules, Fees charged
by RBA on compliance did not contribute to non-compliance
by the schemes, Pension schemes comply with the rules on
appointment of top management. These positively impacted
on the growth of the pension schemes.
63
On the record management systems, the pension schemes
have accurate records and wrong values were not being
placed on benefits, members received accurate
information, proper record management was evident with
little time being spent to rectify simple errors. This
was contributing to the growth of the pension schemes.
The pension schemes’ management was skilled to manage
conflicts of interest, they were also well trained and
competent in their job especially on resource allocation.
In addition, the boards of trustees were well suited to
their job and had good working relations with the
management. This was contributing to the growth of the
pension schemes in the country.
5.4 Recommendations
The study recommends that pension schemes need to invest
in an efficient financial management systems that will
effectively safeguard the members’ contribution since
this study showed that the financial management systems
used in management of the pension schemes were
ineffective.
Further, the study also recommends that the management
needs to put in place a good and efficient IT system that
is sufficient to handle all the financial issues
effectively.
64
The management needs to explore the alternative sources
of funding for the pension schemes such as investing the
members’ contribution in ventures that earn higher
returns. Part of the returns can be used to run the
pension schemes since the study found out that the
members’ contributions were insufficient to run the
pension schemes.
Management needs to liaise with the employers of the
contributor to ensure contributions are remitted in time.
This is important since delays may affect the overall
planning of the pension schemes and may lead to
inaccuracies in payment of benefits.
5.5 Suggestions for Further Research
This study focused on the corporate governance of the
pension schemes, therefore future studies can be extended
to cover corporate governance of other corporate
institutions and companies and assess if similar factors
apply to these organisations.
65
REFERENCES
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Burkhauser, R.V. & Turner J.A. (1995). "Is the SocialSecurity Payroll Tax a Tax?”
Public Finance Quarterly 13 (July): 253-267.
Chamorro, C. (1992). Analysis of Pension Schemes. CatholicUniversity of Chile,
Unpublished Thesis.
Fenge Robert & Werding Martin (2004). Ageing and the TaxImplied in Public Pension Schemes: Simulations forSelected OECD Countries. Fiscal Studies vol.25.10.2. pp. 159-200
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Henderson, K.A. (1994). “Theory application anddevelopment in recreation, parks
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International Labour Organization. (2001) Social security:Issues, challenges and
prospects; International Labour Conference 89thSession, Report VI, Sixth item on the agenda,Geneva: International labour office.
International Labour Organization (1999). Kenya: Meeting theemployment Challenges of the 21st century Addis Ababa: East AfricaMultidisciplinary Advisory Team.
IOPS (2007). Experience and Challenges in Introducing Risk-basedSupervision for Pension Funds’, Working Paper No.4.
Keizi, L.K. (2006). Barriers to Pension Scheme Participation byWorkers in the Informal Economy. Retirement BenefitsAuthority.
Keizi, L.K. (2007). Can Universal Pension help in Reducing Poverty inOld-Age in Kenya? Retirement Benefits Authority.
Kakwani, N., Sun, H. & Hinz, R. (2006). Old-Age Poverty andSocial Pensions in Kenya, International Poverty Center,Working Paper No. 24.
Kinoti, H. W., (1998). A handbook of social research methods.Nairobi: English
Press, National Council of Churches of Kenya
Kothari, C. (1999). Research methodology: Methods and techniques.New Delhi: H.S
poplai (69-70).
Macionis, John J. & Plummer K. (2005). Sociology. A GlobalIntroduction (3rd ed.). Harlow: Pearson Education.p. 12.
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Ngai, M. (2009). “Kenya Sets Age Limit for Pension Pay-out” in TheEast African,
August 11-17, Nairobi: Nation Media.
OECD (2004). Principles of Corporate Governance. page 11.
OECD (2006), Public Sector Pensions in OECD Countries, GOV/PGC/PEM(2006)4, OECD, Paris.
Omondi M. (2007). Retirement woes mount as workers livelonger” Business Daily, (26th June) Nation Media PublicationNo. 078
RBA (2006). Medium Term Strategy. The Pensions Regulator,April page 40.
Republic of Kenya (1999). Kenya Gazette Supplement Ministry ofFinance, Nairobi:
Government Press
Republic of Norway (2006). Pension Reform - Safeguarding OurPensions. Ministry of Finance and the Ministry of Health& Social Affairs.
Sinn, H.W. (1997).The Value of Children and Immigrants in a Pay-as-you-go Pension System. NBER Working paper No. 6229.
Steven L A. (2008). Addressing postmodern concerns onthe border. globalization, the nation-state,hybridity, and social change. Tamara Journal of Critical
Organisation Inquiry 7 (1/2): 179.
The East African (8th January 2007). Kenyan Retirees Doomed toPoverty as Pensions Eat Up 25pc of GDP; Nairobi: Nation MediaGroup
OECD (2004). Recommendation on Core Principles of OccupationalPension Regulation. Availalable onhttp://www.oecd.org/dataoecd/14/46/33619987.pdf
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OECD (2009), ‘Guidelines for Governance of Pension Funds. Availableon; http://www.oecd.org/dataoecd/18/52/34799965.pdf accessed on 1st July 2013.
The Pension Regulator (2006). Regulatory Code of Practice No.9:Internal Controls’.
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World Bank (2005). Pension reforms and ageing population indeveloping countries; Washington D.C.: World Bank
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APPENDICES
Appendix I: Questionnaire cover letter
October 13, 2022
Dear Respondent,
I am a MBA student at Kenyatta University. In partial
fulfillment of the course requirements, I am conducting a
study on: The effects of corporate governance practices on the growth of
Pension Schemes in Kenya. I would appreciate if you could
spare a few minutes of your time to fill in the blanks in
the attached list of questions to the best of your
69
knowledge. The information in this questionnaire was kept
in strict confidence. The information will not be used
for any other purpose other than for this research. Your
assistance in facilitating the same was highly
appreciated. A copy of this research paper was made
available to you upon request.
Thank you in advance.
Yours Faithfully
__________________________
Lameck Okeyo
D53/OL/22116/2011
Cell Phone- 0723452266
Email- [email protected]
Appendix II: Questionnaire
The questionnaire is meant to collect information on ‘‘The
effects of corporate governance practices on the growth of Pension Schemes
in Kenya’’. Kindly answer the questions by writing a brief
70
statement or ticking in the boxes provided as was
applicable.
SECTION A: GENERAL INFORMATION
1. Name of pension Scheme (optional)……………………………………………
2. Type of the Pension Scheme
1) Public Sector
2) Private Sector
3. Respondent’s designation.
1) Trustee
2) Top management
3) Supervisors
4) Others (specify)…………………………………….
4. State your gender:
1) Male
2) Female
5.Please indicate your highest level of education.
1)Primary and below
2)Secondary level
3)College (Diploma,cert)
4)Undegradate
5)Postgraduate
6)Others (specify)…………………………………………………
71
Section B: Risk based Internal Control
6.How would you agree or disagree with the following Riskbased Internal Control issues to affect the growth ofthis pension scheme? 1=strongly disagree, 2=disagree,3= Not sure, 4=Agree, 5=Strongly Agree.
Statements 1 2 3 4 5
a) Pension scheme has adequate riskcontrol mechanisms to address allinvestment risks
b) Pension scheme has adequate risk control mechanisms to address operational risks
c) Pension scheme has adequate riskcontrol mechanisms to addressgovernance risks
d) Pension scheme has adequate risk control mechanisms for internal reporting and auditing mechanism
e) Pension scheme has internal controlto ensure all persons and entities in operational and oversight functions act in accordance with the law
f) The scheme has a sound risk framework for stability of the pension funds
Section C: Financial Management Systems
7.How would you agree or disagree with the followingfinancial management systems as to affect the growth ofthis pension scheme? 1=strongly disagree, 2=disagree,3= Not sure, 4=Agree, 5=Strongly Agree.
Statements 1 2 3 4 5
a) Members receive incorrect ordelayed benefits on transfer, death
72
or retirementb) Members receive inaccurate
information, which may lead to inappropriate decisions
c) There is usually non- or latepayment of contributions, whichlead to delay or inaccuracies inpayment of benefits
d) The scheme requires a better financial management systems to be in place
e) Members contribution is insufficient to run effectively theaffairs of this scheme
f) The existing IT system is not sufficient to handle the financial issues effectively
8. How effective are the financial management systems used
in management of this pension scheme?
1) Very effective
2) Effective
3) Neutral
4) Ineffective
5) Very ineffective
Section D: Compliance to the Existing Regulatory
Framework
9. How would you agree or disagree with the followinglaws/regulatory issues as to affect the growth of this
73
pension scheme? 1=strongly disagree, 2=disagree, 3= Notsure, 4=Agree, 5=Strongly Agree.
Statements 1 2 3 4 5
a) The regulatory system has greatlyhelped to increase the membersconfident with this pension scheme
b) The existing laws/ regulationhinder/prohibit effectivegovernance of this scheme
c) This pension scheme has had somecases of non-compliance with theRBA rules
d) The fees charged by the RBA on compliance contribute to non-compliance by the pension schemes
e) This pension scheme does not complywith the rules on appointment of top management.
Section E: Record Management Systems
10. How would you agree or disagree with the followingissues on record management system as to affect thegrowth of this pension scheme? 1=strongly disagree,2=disagree, 3= Not sure, 4=Agree, 5=Strongly Agree.
Statements 1 2 3 4 5
a) Inaccurate records in this schemeslead to the wrong value beingplaced on benefits
b) Members receive inaccurate information, which may lead to inappropriate decisions
c) The scheme administrator has assess to all members data records
d) Poor record management has led to consequences in calculating technical provisions, benefits and
74
levy e) A lot of time is needed to rectify
simple errors that can be easilyavoided.
f) A lot of costs is incurred in rectifying apparently simple errorsin the system
Section F: Competencies of the Management Body
11. How would you agree or disagree with the followingto affect the governance of this pension scheme?1=strongly disagree, 2=disagree, 3= Not sure, 4=Agree,5=Strongly Agree.
Statements 1 2 3 4 5
a) This pension schemes hasmanagement who are wellskilled to manage conflictsof interest
b) In this scheme,all themanagement have receivedtraining relevant to theirjob
c) This pension schemes has competent top managers
d) The management are competent in resource allocation
e) This pension schemes hasboard of trustees who arewell suited to their job
f) The board members have nogood working relations withthe management
12. How would you rate the adequacy of thetraining/competencies of the management of this pensionscheme?
1) Very adequate
75
2) Adequate
3) Inadequate
4) Very inadequate
5) Not able to rate
Section G: Growth of Pension Schemes
13. How would you rate in overall, the progress of thefollowing parameters in this pension scheme in the last3 years? 1=greatly decreased, 2=decreased, 3=3=remained the same, 4=increased 5=greatly increased.
Growth parameters
1 2 3 4 5
a) Profitability b) Membership number c) Financing of the schemed) Customer/member satisfactione) Complaints levels
14. How would you describe the overall growth of thispension scheme?
1) Excellent
2) Good
3) fair
4) bad
76
5) Very bad
15. How would you rate your satisfaction with the growthof this pension scheme?
1) Very satisfied
2) Satisfied
3) Disatisfied
4) very dissatisfied
5) Not able to rate
16. What recommendations would you make to improve thecorporate governance and enhance the growth of thePension schemes in Kenya?
_______________________________________________________________________________________________________________________________________________________________________________________________________________
THANK YOU FOR YOUR RESPONSES
77