Modelling The Growth Of Pension Funds Using Generalized Linear Model (gamma Regression)
The current demographic shift of the Kenya ageing population, stress an increasing demand for pension schemes in all employment sectors. Unlike Kenya all over the world there have been pension reforms to arrest this population trend since it threatens the sustainability of the country‟s economy. Governments in many countries pay particular attention to pension scheme because of pension funds‟ enormous role in the development of the economy. The laws in Kenya currently governing the pension industry do not encourage mandatory setting up of pension scheme by registered companies, small-scale enterprises and any other organisation in Kenya. Currently we have very many company and registered organisation that do not have retirement benefits plan or any other old age saving for the current employed workforce. This creates a risk of having future old age population that is dependant to the working population. If majority of the Kenyan working force where to have retirement benefit plan then we will have most of this fund be injected in Kenyan macroeconomic productions components, especially on investment in infrastructure development related projects. With this continued tread without any tangible solution there is future risk for majority of employed people retiring without any pension plan in place creating high dependency ratio. Over the last decade and since the operational of Retirement Benefits Authority we have had the reform initiatives and the results achieved. Some of the positive effects of the legislation have started to be felt and thinking is now shifting to policy issues and the challenges of increasing coverage, benefit adequacy and the growth of retirement savings. Indeed over the past years in Kenya, there has been consensus on the need for further reform of the system. The achievements of the past decade, particularly with respect of voluntary employer sponsored occupational schemes, provides a good basis on which to implement further reforms to increase coverage and reduce post-retirement poverty levels. For the purpose of this research I am cross examining at the various types of pension scheme in Kenya particularly the private pension scheme and the growth of the pension funds over a given period. This research project also examines the current private sector employee and expected future growth modelled based on generalized linear model. Lastly, an analysis is done to find out whether mandatory setting up of pension scheme will have a positive and exponential growth in x comparative to current non mandatory system, based on past fund value, private sector work force and risk free interest rate. For the purpose of analysis, the research project uses a combination of data for which the main sources are; Retirement Benefits Authority, Kenya Bureau of statistics and Nairobi Stock Exchange scholarly literature review on the subject. The growth of pension funds has positive relation with given variables. An increase in the population that contributes to pension scheme translate to more funds and hence the growth of pension funds. Likewise since the pension funds are invested in different asset class in the economy, and then at the end of valuation period interest is credited to the capital. High rate of return technical translate to high fund growth hence a positive increase in interest rate contributes to positive growth of the pension funds.