Longevity improvement: financial implications to public defined benefits pension schemes in Kenya
Date
2017
Authors
Koross, Kiprono David
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
Provision of old age social security benefits by governments, pension schemes and insurance companies form the largest proportion of age related spending across the world. It has also been established that people are living longer than initially projected. In Kenya, people born between 1980 and 2000 are living longer and healthier lives than those born before 1980 (World Population Prospects, 20 12). It has also been established that overall liability arising due to longevity of life for the hypothetical defined benefits schemes is estimated to increase. This research examined the implications of longevity improvement on the liabilities of existing public Defined Benefits pension schemes in Kenya which is an issue to both the members and the financiers of the scheme as they represent uncertainty for the amount required to plan for the retirement fund adequately. The research first determines whether pensioners are living longer and then calculates the impact of the longevity improvement on the liabilities of pension schemes. Finally, the paper discusses several policy issues on how to deal with longevity risk while emphasizing the need for policy guidance from the industry regulator. The research applied quantitative analysis. The results of the study show that the members of the Defined Benefits Schemes are living longer than expected and this has a financial impact on the liabilities of the scheme. The findings also establish that the pension funds did not fully account for future improvements in mortality and life expectancy. In response to the changes in lifetimes of the retirees, one policy response was to increase the retirement age from 50 to 60 years and to increase the pension factor thereby increasing the productivity period of an individual while deferring the retirement liability.
Description
A Research project submitted in partial fulfilment of the requirements for the Degree of Master of Public Policy and Management (MPPM) at Strathmore University.