The Effects of Life Assurance and Pension Schemes on Personal Savings: a Case Study of the Middle Income Group in Nairobi

Abstract

An individuals earning capacity does decline beyond a certain age, because of uncertainty about future income individuals save during years of peak earning potential in order to finance consumption at the later date. There are many competing forms of ~~savings in which individuals may engage in. Subscription to pension '--- ... and life assurance schemes act as the most readily available formal indirect method of saving for them. The study analyses thf effeccs of these schemes on private savings. The objectives of the study werej.- (i) To test whether pension and life assurance schemes do lower the level of private savings. (ii) Evaluate whether these schemes do induce one to retire early, (iii) To identify other key factors that effect the level of private savings. and (iv) Based on the study's findings, draw policy recomme nda t .ion s . Cross sectional data was collected from Umoj a };Estate. This «a s done with the aid of a questionnaire during the month of July llh',. A stratified sample of 100 household heads we re personally interviewed. The framework of analysis was based on t he Ando-Br'",:'l'..Derg Modglian life-cycle savin~model. Regression resulcs sl:ow that ~o~ all variables considered were significant in affectins sa\-ings n_ 0.10 level of significance, expe qt.ed income earnings, number of dependents and expected pension benefits were found to have c, statistically significant effect at this level of sig~ificance. Lastly, we came up with policy implications ":lhichare: i) The government should ensure that pensiorr schemes are ~2~~ run to be able to provide members with the ne cessazv be ne f =- r.s'.:".:::e:-:. they retire. ii) The government should institute policies that lead :0 improvement in peoples incomes and especially those in Lowe r .inc o.ne brackets.