A pension model for the informal sector in Kenya

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 pei· 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.