BACHELOR OF COMMERCE (FINANCE)

HBF 2402: PENSIONS FINANCE Cat 2

JOSEPH KIMANI

HDB211-0124/2021

YEAR 4.1

1. Describe the roles of each of the following parties who may be involved in the provision of
pensions in Kenya.

i. The regulator (2 Marks)

Their roles include:

Guaranteeing that all benefits plans are working legitimately and defending members' benefits is
done by licensing and directing them.

Members' interests are ensured by the RBA, which looks into complaints and takes action against
noncompliant annuity frameworks.

Promoting transparency and understanding by teaching the public about annuity plans and
benefits.

ii. Employers (2 Marks)

Employers play a basic part in benefits arrangement by:

Contributing on behalf of their workers to the benefits plan: This contribution, which can be part
of the employer and the worker, is regularly communicated as a percentage of the worker's wage.
Educating employees on their pension benefits: Employers must make beyond any doubt staff
individuals get their pension rights and the operation of the plan.

iii. Trustees (2 Marks)

Their duties incorporate:

Serving the interests of benefits plan members within the best possible way Ventures, benefits,
and scheme administration are all chosen by the trustees.

Making beyond any doubt the plan adjusts to all appropriate laws and directions: The
scheme's general governance is the duty of the trustees.

Selecting a fund manager: The trustees select a competent fund manager to oversee the resources
of the scheme.

iv. Fund Manager (2 Marks)

Their obligations include:

Overseeing the speculation portfolio: The fund manager chooses ventures with the purpose of
expanding the resources of the plan and giving members rewards.

Reporting to the Trustees: The trustees get customary updates from the fund management with
respect to the portfolio's performance.

2. What are challenges faced by retirement benefit authority schemes in Kenya. (4 Marks)

Retirement benefit authority schemes in Kenya face several challenges, including:

i. Regulatory Compliance: Making sure that every scheme complies with the rules
established by the Retirement Benefits Authority (RBA) can be difficult. Sufficient
compliance with evolving legislation and reporting guidelines necessitates ongoing
observation and modification.
ii. Investment management: To manage risks and provide sufficient returns, pension funds
must be invested wisely. Issues including market volatility, a lack of investment
 alternatives, and conflicts between short-term liquidity requirements and long-term
investment goals can limit optimal investment management.
iii. Member education: A large number of members might not be financially literate or
comprehend how the schemes operate, which could result in their making bad decisions
with their retirement funds.
iv. Administration and Governance: The viability of retirement benefit plans depends on
efficient administration and governance. A lack of transparency in the decision-making
processes, conflicts of interest, and insufficient experience among the trustees and
administration may all present difficulties.

3. List and explain the benefits provided under National Social Security Fund Act 2013 payable
under both pension and provident fund 4mks

i. Retirement benefit: This benefit is paid under the pension plan and gives the member a
consistent income once they reach the fund-specified retirement age. The member's years
of service and contributions decide the sum of the benefits.
ii. Survivor's Benefit: Should a member pass away, their life partner or dependents will be
qualified to get a survivor's annuity. The surviving member's family will receive
monetary back, and they are very obliged to receive this benefit.
iii. Withdrawal Benefit: In agreement with the provident support plan, members may take
out all or a portion of their collected contributions in the event that they fulfil particular
requirements, such as resigning, leaving, or coming to a predetermined age. Individuals
who qualify for this advantage can utilize their reserve funds to cover the extent of costs,
including lodging, instruction, and restorative costs.
iv. Invalidity Benefit: Individuals may be qualified for invalidity benefits on the occasion
that they endure a lasting disease or damage that prevents them from working. In these
situations, this benefit offers the member cash support.
4. Explain the distinction between the following investment options.

(i) Mutual funds (2 Marks)

These contributions from investors are supervised by a qualified fund manager, who allocates the
funds among stocks, bonds, or a combination of the two. This diversification aids in distributing
risk.

Mutual funds provide liquidity, transparency and diversity. Skilled managers actively manage
investments to meet goals. They provide investors with the ability to buy or sell shares.

(ii) Corporate bonds (2 Marks)

A corporate bond is an advance given to a business. Purchasing a corporate bond is equivalent to

giving the firm cash for a predetermined sum of time, as a rule, with regular payments at a preset
interest rate.

Corporate bonds offer investors predictable income streams with fixed intrigued rates. Bonds
have specified maturity dates, with yields shifting based on components like credit quality,
maturity, and market interest rates.