Abstract
The longevity risk borne by members of defined contribution pension schemes and the funding risk borne by sponsors of defined benefit pension funds have shifted attention to the investment strategies employed by pension funds. We use secondary data from 206 occupational retirement benefits schemes in Kenya, to examine the influence of pension scheme maturity on investment strategies. We then triangulate the results using focused group discussions with industry experts. Results from the regression models indicate that scheme maturity does not influence the investment strategies of occupation schemes in Kenya contrary to life cycle theory. The Retirement Benefits Authority and trustees of retirement benefits schemes in Kenya are advised to offer members’ investment choices coupled with education to enable them make decisions to reduce their exposure to risky assets as they age.
Highlights
Increasing life expectancy and a fall in birth rates especially in developed countries are contributing to an increase in old age dependency ratio (World Economic Forum [WEF], 2017; Mercer, 2016)
This study employed explanatory research design to investigate the influence of scheme maturity on investment strategy
Pension scheme maturity was measured by the average age of scheme members as at December 31, 2016 while investment in risky assets expressed as a percentage of the scheme’s fund value was used as a proxy for scheme investment strategy
Summary
Increasing life expectancy and a fall in birth rates especially in developed countries are contributing to an increase in old age dependency ratio (World Economic Forum [WEF], 2017; Mercer, 2016). The situation is expected to get worse since the global population aged over 65 years is projected to increase from the current 600 million to 2.1 billion by 2050 due to advances in medical technologies and changes in lifestyle. This will result in a population of a smaller workforce supporting growing number of retirees by 2050.
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