Actuarial Costing Methods Used in Insured Pension Schemes in Kenya
Abstract
This was an exploratory research whose primary objective was
to document the actuarial costing methods used in insured pension
schemes in kenya. The secondary objectives investigated were:
(i) What reasons influence the choice of the actuarial
costing methods,
(ii) Whether the life offices combine actuarial costing
methods to provide different benefits within a scheme
and,
(iii) Whether any difficulties are encountered in the use of
the actuarial costing methods and if there be, the
corrective measures employed to counter them. This research was
prompted by the general absence of pertinent information on
actuarial costing methods used in insured schemes in kenya.
The primary data for this research was collected by use of
the questionnaire supported by a brief description of the
actuarial costing methods that was annexed in the questionnarie.
This information was sought from 8 life offices that transact
pension business in kenya, 7 of which responded.
The data gathered was presented using summarized tabulations
and proportions.
The major findings were that six actuarial costing methods
were used to cost pension schemes. Ranked in order of frequency
of use are: Defined contribution method (55% of schemes),
Aggregate Level-Cost methods (22% of schemes), Accrued Benefit
method, Entry Age Normal Cost method (which tie - 9% of the
schemes), Projected unit method (4% of the schemes) and Attained
(ix)
Age Cost method (1% of the schemes).
It was also revealed that the specific schemes
characteristics coupled with the advantages that each method
offer, influenced the choice of the actuarial costing method to
use. The basic scheme characteristics cited were: the benefit
formula specified by the plan sponsor, the rate of flow of new
entrants into the scheme, the funding instruments selected for
use, age and sex distribution of the membership, the degree of
flexibility_ in contribution rate desired by the plan sponsor, the •
membership size of the scheme, the employees requirement for
security of their benefits, the plan sponsor's affluence and cash
flow position, as well as the basis of contribution rate
specified by the plan sponsor.
Regarding benefits offered, it was revealed that schemes
offered a wide range of benefits. However, schemes, secured on
conventional life policies offered a larger package of benefits
combining both retirement-income,death income and supplemental
benefits. Whereas schemes secured on deposit administration
contracts mostly offered retirement and death incomes.
Supplemental benefits' were also offered under these schemes on
demand at an accelerated rate. No life office combined actuarial
costing methods to provide benefits within a scheme. Similarly,
no office had difficulties in applying the actuarial costing
methods.
Citation
Marwa SM,1992;Faculty Of Commerce, University Of Nairobi.Publisher
University of Nairobi Faculty Of Commerce, University Of Nairobi