The viability of private pension, defined contribution scheme, in Kenya.
Mue, Mathew Musaki
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Pension refers to the benefits one receives after attaining retirement age. There has been a significant increase in the needs for such benefits as the number of citizens in the country reaching retirement age has increased. Regardless of the fact, the state has been overwhelmed in the provision of such benefits. It has put in place policies to encourage private provision. There are three main pension schemes: Defined Benefit, Defined Contribution and a Hybrid Scheme. There has been a significant shift from the DB pension scheme to the DC pension scheme. This shift has been as a result of the wider changes in the pension landscape such as change in the legal and regulatory framework within countries and introduction of mandatory funded level just to mention a few reasons. The important question to ask is how suitable are these pension products being offered by private pension providers in particular, insurance companies. This study addressed two issues. First, it attempts to check whether the interest rate used by insurance companies in the calculation of interest earned considered the needs of the pension scheme members and if so protected them against investment risk. Secondly, from the rate acquired, the study determined the benefit amount attributable to the scheme members and showed how it is achieved. The results show that the interest rates used in attaining the earned interest amounts for the scheme members were sensitive to interest rate news. However, it was achieved that the interest rate news was not determined by the company's characteristics nor was it influenced by the needs of the scheme members. In conclusion, the study presented a good opportunity for research on what factors caused the sensitivity of the rate of return used to calculate the interest amounts to interest rate news. It also provided an understanding of the valuation of the pension benefit amounts for scheme members of a defined contributions pension scheme.