Stochastic modelling for the pension funds companies; a case old mutual personal pension plan

Abstract

The study aimed to determine stochastic modelling for the pension funds companies; a case of Old Mutual Personal Pension Plan. The study was guided by the following objectives; to identify economic factors affecting stochastic modelling in pension schemes, to determine a suitable stochastic model that can be used to model pensions for Old Mutual Personal Pension Plan and to establish the efficiency of the proposed pension schemes. The study adopted a case study research design. The target population was the management staff of Old Mutual Personal Pension Plan in the Nairobi branch. The data collection instruments that were used to collect data from the selected respondents was data collection sheet. Data was collected quantitatively from primary and sources.it was checked for accuracy and completeness. The data collected was analyzed using statistical package for social scientist (SPSS). The findings of the study were presented statistically in tables and figures. Inferential statistics of correlation, regression and Chi-square were employed. The study found that inflation, wage growth rate, long term interest rates and equity returns on assets were positively correlated to each other and significantly affected the efficiency of stochastic modelling. The study concluded that of the four variables results equity returns on assets affected the efficiency of the stochastic modelling the highest. This is attributed to the fact that pension schemes engage in investment of the funds of their pensioners and therefore the returns from this investment affect the effectiveness in performing their obligations. The study concluded that the proposed stochastic model was efficient and should be therefore employed in the pension funds companies. The study made the following recommendations; pension funds should invest wisely in order to ensure that their returns are good since their performance are crucial in meeting the needs of their pensioners and pension schemes should employ a suitable stochastic model that pay careful attention to inflation, wage growth rate, long term interest rates and equity returns on assets since these economic factors influence greatly the performance of pension schemes.