The Insurance of Old Age Needs:the Case of Pensions

Abstract

Among other factors, age is a major determinant of efficiency, old age impairs efficiency. Arrangements therefore need to be made to provide for the needs and continuing responsibilities of individuals who have attained old age or retirement age. Governmentsin their efforts to ensure social security (basic minimum living standards) through welfare payments, help individuals discharge their old age responsibilities. These payments however rarely go beyond helping the recipients meet the minimum requirements in their lives. From the time of the industrial revolution, the increase in the use of hired labour has further compounded the problems of old age needs. The retirement age has been progressively lowered because of competition amongst producers of goods and services who attach a lot of importance to productivity and therefore require young workers. Scientific discoveries in the medical sector .has substantially increased life expectancy. Employers have increasingly resorted to pensions as one way of alleviating the problem of old age distress. This study analyses the nature and characteristics of pension schemes, importance of pensions and the role of assured pension schemes with-particular reference to Kenya. A review of pertinent literature on the subject is undertaken. Pensions have evolved from the gratuitous payments, through being seen as a business social responsibility to the deferred compensation concept that is widely accepted today. The importance of pensions especially in Kenya becomes even clearer considering the increasing rate of industrialization and wage employment after independence. The dependency ratio also confirm the importance of pensions with 69% of the population being less than 18 years of age. Moreover, the communal support for the aged is fast disappearing leaving employers as the only resort with regard to providing of old age needs of their employees. Pensions schemes can be of various types and characteristic. Public pension are provided by the government while private pension schemes are those arranged by non-government employers Private pensions are of great variety ranging from contributing to non-contributory, funded to non-funded, and self-administered to assured schemes. Assured schemes are popularly used in Kenya especially among small employers who find consideration of risks, investment opportunity,'administrative cost and other issues like employee ,satisfaction militating against self administration of the schemes. Ultimately the decision to assure or self administer pension plans rests solely with the management especially their attitude towards and preference for either choice. Generally defined contribution schemes. are not as popular as defined benefit schemes. Insurance plays a vital role in the provision of pension benefits. They provide a variety of benefits and arrangements well beyond the self administered schemes.