Determination Of Actuarial Costing On Non-Remitted Contribution For A Defined Contribution Scheme

ABSTRACT

Income accrued from Retirement Benets Fund is an exceptionally important component of

every working individual's life cycle globally. The major sources of such income are: unfunded

state pensions; funded private pensions; mandatory schemes; and post-retirement work. The

urgency and importance has made many countries to give it considerable attention by enacting

enabling laws and policies to safeguard it. In Kenya, steps have been made by establishing the

National Social Security Fund and enacting the Retirement Benets Act and Regulations; to

protect retirement benets for the ageing population which is at an annual rate of 0.45 percent.

Even though the country has experienced a positive growth from the past decades attaining

KES. 1.08 trillion by the end of 2017, full potential growth hasn't been achieved. This is mainly

attributed to leakages in the fund as a results of non-remittance of contribution despite it being

the major source of funding in the dened contribution scheme. The absence of proper policy

and professional guidelines on how the lost interest should be handled to benet the members

exacerbate the loss. The purpose of this study is to determined adequate remedial plan taking

into consideration actuarial costing method. The specic objective includes; to calculate the

accrued liability resulting from non-remitted contribution, to determine the payment period

of the accrued liability and determine the interest rates applicable for the unfunded liability.

The study determined actuarial rate by multiplying exponential raised to in

ation rate with

realized rate of return and the same was done for rate of 91-day treasury. The highest of the

two rates was then selected to be the computed compensation rate that was then used to com-

pute actuarial liability of the scheme. ARIMA (2,0,0) was then tted to forecast the future

compensation rate. The forecast rates were later used to determine possible payment periods.

The study also found out that retirement benets are depleted by rate of in

ation and non

remitted contribution thus in

ation should be taken into consideration when valuing actuarial

liability of the scheme for non-remitted contribution. We obtained the rates of 91-day T-bill

from Nairobi Stock Exchange web-site while the rate of in

ation was obtained from Kenya

National Bureau of Statistics. Finally, the results from this study will be of importance to

scheme trustee, members, regulator and policy makers.