An investigation of the determinants of the amount of benefits accessed before retirement age in Kenya
x ABSTRACT The primary purpose of a pension system is to provide regular income upon retirement. Most governments support pensions directly or give direction in the establishment of pension schemes. In Kenya, retirement schemes are set up on a voluntary basis and are regulated by Retirement Benefits Authority (RBA). In addition, RBA also regulates the National Social Security Fund, which is a statutory fund requiring all employers to make contributions on behalf of their employees. The employees are also obliged to make statutory contributions to the scheme. Prior to 2005, members of scheme would access up to 100% of their total benefits upon changing jobs or leaving service before attaining the retirement age of the scheme. In 2005, the Retirement Benefits Act was amended to prevent members from accessing the whole of their benefits upon leaving service before attaining the retirement age. This was further reversed in 2010, where the RBA Act was amended to allow members to access up to 75% of their total benefits upon changing jobs. Of interest was to establish how much was accessed by members upon leaving service. The study therefore looked at the data presented by the pension scheme administrators and used statistical tools to interpret and develop a predictive model for the early access of pension benefits. The results show that there is a negative relationship between amount of benefits accessed before retirement and the amount of income, age and the number of years in the scheme. Further, the results also showed that Younger members of scheme, those from age group 26 to 35 tend to withdraw their benefits early in comparison to the older members of the scheme. This is in line with Life cycle hypothesis that explains how rational individuals allocate their life-time earnings between consumption and retirement savings over their life cycle. In addition, the study shows that most members withdrew their pension scheme after working for less than five years and a majority, 51.8% withdrew 75% of the pension benefits. This is in line in the RBA regulations which stipulate that the maximum amount of benefits that can been withdrawn upon changing jobs for member have not attained retirement age is 75% of the total benefits.