PENSION FINANCE

ASSIGNMENT II

HDB211-0124 _2021

PART A

Write short notes on:

Trust fund plans;

A trust fund is a lawful entity that holds property or resources for an individual or an organization as an
estate arranging instrument. It can hold cash, real estate, stocks, bonds, a company, or a blend of
various diverse sorts of properties or resources.

a. Nature of Trust Funds:

i. Flexibility: Terms can be customized according to needs and goals, such as payout
schedules, spending caps, and age triggers.
ii. Tax Benefits: Trust funds may be useful in lowering estate taxes when the assets are
eventually passed on to the beneficiaries. The beneficiaries could have lesser income taxes if
their inheritance is in the form of a trust fund.
iii. Assets Control: A grantor can be able to control the trust funds even if the assets that they
have transferred into the trust through the use of properly built and phrased trust funds.
iv. Legal Structure: A trust fund is a legally established organization to hold assets under the
management of a trustee on behalf of the beneficiaries in trust.
v. Resources Held in Trust: The trust and not a person holds the legitimate title of the
properties like cash, real estate, speculations, etc. This keeps the assets secure.
vi. Trusteeship: Trusteeship involves the responsibility of a trustee in overseeing resources
within the best interest of the beneficiaries, as concurred within the terms of the trust. In
this way, the obligation of care that concerns the assets falls on the trustee.
vii. Beneficiary: The trustee fund consists of beneficial entitlements to the funds and
accumulation of assets, which may eventually yield not only the principal but also income to
a beneficiary.
b. Benefit structure and contributions
• Trust funds enable estate planning through the management and passing of assets according to
the wishes of the grantor, with a minimum of cost and delay because of probate.

• Trust funds offer flexibility in distribution that matches the grantor's, as well as any
beneficiaries', and their objectives.

• Asset protection, which protects trust assets from creditors, lawsuits, and other claims in a
manner that provides the maximum benefit to the trust.

• Calculate principal payouts and the revenues in proportion to the principal payouts.

• Timing and amount of the distribution to the beneficiary.

Contributions

i. Cash: Grants may be in the form of cash or other easily tradable assets such as mutual
funds, stocks, or bonds
ii. Real estate: The grantor is able to give the trust ownership of his real estate as far as his
residences, vacation rentals, and land are concerned.
iii. Business interest: Grantors may contribute to the trust stock in corporations, LLCs,
partnerships or any other business interests.
iv. Life insurance plans: A transfer of ownership may be made to a trust where the beneficiary
gets a non-taxable death benefit.
v. Personal property: Grantors may contribute to the trust any item of the set of personal
properties, including jewelry, artworks, and collectables owned by them.

PART B
 1. Identify two major investment avenues through which the Kenya pension schemes have
been investing their fund.
a. Defined Contribution Plan: A defined contribution plan is a pension scheme where bosses,
representatives, or both contribute a defined sum to a benefits pot, contributed in stocks,
bonds, and real estate. The member's benefit depends on the execution of ventures and
commitments over time. In Kenya, the National Social Security Finance (NSSF) is a case of a
defined contribution plan.
b. Defined Benefit Plan: A defined benefit plan is a pension scheme where the manager ensures a
particular advantage to a worker upon retirement, calculated based on components like
compensation, benefit length, and age. In Kenya, the Open Benefit Superannuation Conspire
(PSSS) is an example of such a plan, with the employer bearing an investment hazard.

2. Explain the concept of social security in the context of the problem of the aged.

Social security refers to the government or a society providing its people or a fraction of the population,
particularly in the case when it gets impossible for them to work and take care of themselves—most
commonly upon becoming elderly—with different kinds of money and other assistance. An important
economic challenge that Kenya is facing with the old population lies in the high elderly poverty rates and
poor access to social security programs.

This is what the World Bank further posits, stating that 27.2 per cent of Kenyans are living below the
poverty line despite the rate of poverty in the country having been consistently reduced. The senior
citizens of Kenya are a particularly at-risk group for falling into a poverty trap since many depend on
informal networks and family support in order to maintain financial stability. These traditional financial
support systems have, however, become less reliable as Kenya's social and economic landscape shifts.

The Kenyan government has set different social security schemes, among them the National Hospital
Insurance Fund (NHIF) and the National Social Security Finance (NSSF), to protect the elderly from
money-related challenges. The NHIF, on the other hand, is a well-being insurance program that caters to
the cost of hospitalization, among other costs, for the given medical administrations.

However, despite these efforts, most of the elderly Kenyans are left out of access to social security
benefits because of the low coverage of the programs and the high costs involved. In research published
by Help Age International, he observes that only 17% of the older population in Kenya is eligible for a
pension or social security program. This means that seniors in Kenya are compelled into casual networks
and family support to achieve financial protection in most cases.

Therefore, the Kenyan government must make sure that its social security programs reach more of the
elderly and are readily usable in order to take up this challenge. Cost reduction associated with the
schemes, creating awareness of the gains to the public, and giving incentives to businesses for
contributions to the NSSF.

The government also has to face structural issues that are at the heart of the economic issues of an
ageing society, such as unemployment, poverty or low education and skill levels. By taking care of these
problems, the government may contribute to making the climate friendlier to the senior people,
achieving financial security and leading respectable lives.

In conclusion, this is an important aspect of social security in Kenya that supports the elderly
economically. Efforts by the government to expand coverage and access are necessary to improve
inclusive economic growth and ensure dignified lives.

References

https://www.investopedia.com/terms/t/trust.asp

https://academic.oup.com/book/2148/chapter/142108821