A pension model for the informal sector in Kenya
Date
2021
Authors
Kariuki, Mercy Wanjiku
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The purpose of this research paper is to come up with a pension model for the informal sector in
Kenya. We develop a pension model that uses pre-retirement mobile phone airtime expenditures
through use of Bonga Points to accumulate the pension fund. We then determine the expenditure
patterns experienced pre- and post-retirement and use these patterns to advise on the daily
amount required to be saved above the current amount in order to. facilitate a comfortable postretirement
life.
The data utilized in this study was retrieved from primary and secondary sources. Inflation and
interest rates data were retrieved from Kenya's Central Bank database. The mortality rates were
retrieved from the World Health Organization and the life expectancy from World Atlas, Lancet
and World Life Expectancy. Pre-retirement and post- retirement data were retrieved from a
survey done in the informal markets in Kenya.
The inflation and interest rates were forecasted using the Vasicek Interest Rate Model using MS
Excel. The resl.llts show that an average individual working in the informal sector spends
J approximately KShs. 6,130.77 peiĀ· month for his/her livelihood. Due to inflation trends in the
country, their expenses will increase in order to maintain the same standard of living during their
retirement. Given the expenditure pre-retirement in that they will need to save KShs.754.30 per
month, it will require them to be increase their mobile phone expenditure by KShs. 40 per day in
order to raise an amount sufficient to sustain their lifestyle post-retirement.
Description
Submitted in partial fulfilment of the requirements for the Degree of Bachelor of Business Science in Actuarial Science at Strathmore University