Asset allocation restrictions and pension funds’ performance in Southern Africa

Abstract

The relationship between asset allocation restrictions and performance of pension funds is critical in determining whether asset allocations as selected by fund managers of pension schemes are critical in influencing the financial performance of pension funds resulting in better retirement benefits for pensioners. The main objective of this study was to determine the effect of assets allocation restrictions on the financial performance of pension schemes. Governments have an obligation towards the pension funds in safeguarding the returns for the members, particularly when the contributions are obligatory. This obligation has been the reason used to justify stringent regulations of pension funds’ portfolios, the funds management industry’s structure and investment returns but these restrictions have a cost. This research was conducted through a descriptive survey and utilised Primary data given by pension funds managers on monkey survey platform. 20 fund managers from three countries (Zimbabwe, Namibia and South Africa) were used. Survey Monkey tool was used to collect the data and Social Package for Social Science (SPSS) software was used to analyse data. Secondary data was also used in this study which was collected from retirement benefit fund financial reports, journals, newspaper articles, investment reports. The study revealed that there is negative linear correlation between -asset allocation restrictions and the performance of pension funds. The most negative effect of restrictions was felt on the organization’s ability to be innovative, the organization’s ability to diversify risk and the organisations and investment opportunities for pension funds. As restrictions increased, innovation of pension funds decreased the most. The study recommended that quantitative restrictions should be replaced with prudent person rule to be implemented with corresponding strengthening of regulatory capability.