Determining optimal contribution levels of defined contribution pension plan in Kenya

Abstract

This study seeks to determine optimal contribution level required in a Defined Contribution Pension Plan so as to be adequate for the life of the retiree on retirement. The objective is to determine the contribution of the working adult through his working years, as a factor of inflation over the working years, salary increment, investment of the fund and number of working years, so as to achieve the optimal contribution to be adequate for the life of the retiree. The life expectancy of the retiree is derived using the Curtate Life Expectancy. Assets of the fund are invested in stocks. Salary is increasing half times that of the inflation rate. The optimization is done under a budget constraint that guarantees the actuarial equilibrium between the current asset and future contributions and benefits