A survey into framework for immunisation by retirement schemes in Kenya.

Abstract

Pension immunisation provides an attractive option to the trustees of retirement benefit schemes as it provides them with a tool to control their financial risk as well as allows trustees to target a given value of assets at the end of the investment horizon. An immunisation strategy allows the trustees the peace of mind that they have locked in interest rates hence maximising returns in a volatile market as well as providing them with the flexibility to take advantage of market movements. . Immunisation has been applied successfully in America and Europe in the late 1970s and is currently being considered in South Africa. This study therefore sought to determine whether the framework to support pension immunisation exists in Kenya and the potential challenges trustees would face if they were to adopt the strategy in Kenya. This study shows that to a large extent the framework to support immunisation exists m Kenya since fund managers and actuarial consultants estimate the present values of the investment assets and present values of the liabilities of retirement schemes. The study reveals a number of potential challenges r at would need to be addressed prior to the implementation of the strategy, which include the lack of depth in the Kenyan capital market, turbulent economic fundamentals, extent of under-funding of many retirement benefit schemes in the country as well as the limited actuarial consulting role prescribed in existing legislation. The study funher reveals that fund managers and actuarial consultants work independently and only consult on rare occasions. This calls for changes in policy to establish a formalised link between the fund managers and the actuarial consultants on an ongoing basis for successfully implementation of pension irnmunisation. From the findings of the study, it is recommended that further studies be carried out into the trustees appreciation of the concepts of immunisation. Separate studies on the potential challenges identified in this study with a view of recommending possible solutions to them for an immunisation strategy is to be deemed viable by the trustees may also be carried out as an extension to this study.