Risk management practices and financial performance of individual pension schemes in Kenya: the moderating role of regulatory frameworks
Date
2025
Authors
Ojwang, C. A.
Journal Title
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Volume Title
Publisher
Strathmore University
Abstract
Investments in Kenya’s pension industry have experienced significant volatility, leading to fluctuations in financial performance and periods of negative returns. This study explores the effects of risk management practices—internal controls, risk assessment, and risk avoidance—on the financial performance of Kenya’s registered individual pension schemes. Anchored in modern portfolio theory and agency cost theory, the research adopted a quantitative, descriptive design targeting the finance team from all 48 registered individual pension schemes in Kenya. A census approach was employed, with structured questionnaires administered electronically to the 48 individual pension schemes, achieving a 98% response rate (47 respondents). Data were analyzed using correlation and cross-sectional OLS regression. Key findings revealed a significant positive effect of risk avoidance practices on financial performance, while internal controls and risk assessment showed statistically insignificant direct effects. The regulatory framework significantly moderated the relationship between risk avoidance and performance amplifying its positive impact. Correlation analysis further confirmed strong associations between all risk management practices and financial outcomes Notably, adherence to regulatory guidelines correlated strongly with improved performance The study concludes that pension schemes must prioritize risk avoidance strategies and align them with regulatory requirements to enhance financial sustainability. Recommendations include institutionalizing proactive risk evaluation protocols, strengthening compliance with Kenya’s Retirement Benefits Regulations (2023), and integrating risk-adjusted metrics into performance monitoring. These findings offer actionable insights for policymakers and scheme managers to mitigate systemic volatility and improve long-term returns. The study acknowledges limitations, including its focus on individual pension schemes in Kenya, which limits generalizability to other pension models or regions. The cross-sectional design restricts causal inferences, and the reliance on self-reported data introduces potential response bias. Additionally, the omission of variables like leadership commitment and macroeconomic factors may oversimplify the complex drivers of financial performance. Despite these constraints, the research contributes theoretically by refining agency and modern portfolio theories, demonstrating how internal controls mitigate agency costs and how risk avoidance aligns with risk-return optimization. Practically, it offers policymakers and pension managers actionable insights, emphasizing the integration of risk avoidance with regulatory compliance, advanced technologies, and adaptive governance. The findings also highlight the need for future longitudinal and mixed-methods studies to explore temporal dynamics and contextual nuances. The study concludes that pension schemes must prioritize risk avoidance strategies and align them with regulatory requirements to enhance financial sustainability. Recommendations include institutionalizing proactive risk evaluation protocols, strengthening compliance with Kenya’s Retirement Benefits Regulations (2023), and integrating risk-adjusted metrics into performance monitoring. These findings offer actionable insights for policymakers and scheme managers to mitigate systemic volatility and improve long-term return
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Citation
Ojwang, C. A. (2025). Risk management practices and financial performance of individual pension schemes in Kenya: The moderating role of regulatory frameworks [Strathmore University]. http://hdl.handle.net/11071/15753