MERU UNIVERSITY OF SCIENCE AND TECHNOLOGY

P.O. Box 972-60200 – Meru-Kenya.

Tel: +254 (0)799529958, +254 (0)799529959, +254 (0)712524293
Website: www.must.ac.ke Email: info@must.ac.ke
University Examinations 2019/2020

FOURTH YEAR, FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR

OF COMMERCE

BFC 3430 – PENSION FINANCE

DATE: OCTOBER 2020 TIME: 2 HOURS

INSTRUCTIONS: Answer question one and any other two questions.

QUESTION ONE (30 MARKS)

a) Describe the roles of each of the following parties who may be involved in the provision
of pensions in Kenya.
(i) Employers (3 Marks)
(ii) The regulator ( 3 Marks)
(iii) Trustees (3 Marks)
(iv) Fund manager (3 Marks)
b) Explain the difference between Defined Benefit Scheme and Defined Contribution
scheme. (8 Marks)
c) Discuss three challenges of expanding pension coverage in Kenya. (6 Marks)
d) Explain the two fundamental tenets of the new legislation for pension system in Kenya.
(4 Marks)

QUESTION TWO(20 MARKS)

a) Mr. Muriungi works as a Human Resource Manager in Kenya Railways on a permanent

and pensionable basis. The following were his employment details for the month of
December 2015;

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 • He was paid basic salary of sh. 90,000 , house allowance of sh. 30,000 and
commuter allowance of sh. 12,000. He contributed five per cent of his basic salary
to pension scheme and the employer contributed ten per cent. He lives in Nairobi
and is married with two children.
• He had a life assurance policy with ICEA Lions Insurance for which he
contributed sh. 5,000.
• He had mortgage loan from Savings and Loan (National Bank) which he took for
purchase of residential property on which he repaid sh.20,160. The repayment was
inclusive of interest of sh. 10,000.
• Other statutory deduction : NHIF sh. 1,700

Required:

Prepare a well laid out statement (pay-slip) showing Mr. Muriungi’s net pay for the month of
December 2015.

(i) Assuming that the pension scheme is registered

(ii) Assuming that the pension scheme is not registered

RATES OF TAX

Monthly taxable pay(shillings) Rate of tax % in each shilling

1 - 10,164 10%

10,165 - 19,740 15%

19,741 - 29,316 20%

29,317 - 38,892 25%

Excess/over - 38,892 30%

Personal relief Kshs. 1,162 per month

Insurance Relief 15% of the contribution (10 Marks)

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b) Briefly explain the following laws in Kenya that provide for social security:
(i) National Hospital Insurance Fund (5 Marks)
(ii) Retirement Benefit Authority Act (5 Marks)

QUESTION THREE (20 MARKS)

a) Discuss various categories of financial risks faced by a pension scheme. (12 Marks)
b) List and explain the benefits provided under National Social Security Fund Act2013
payable under both pension and provident fund. (8 Marks)

QUESTION FOUR (20 MARKS)

a) The current retirement benefits system in Kenya can be classified into four scheme types;
(i) List the four scheme types (4 Marks)
(ii) Discuss the scheme types in terms of their establishment, coverage, funding and
regulation. (6 Marks)
b) Despite numerous advantages of using corporate trustees, over 90% of Pension Schemes
in Kenya use individual trustees.

Required:
Explain ;
(i) The advantages of using individual trustee (5 Marks)
(ii) The disadvantages of using corporate trustee (5 Marks)

QUESTION FIVE (20 MARKS)

Old age is emerging as a global phenomenon. Number of persons who are old worldwide is
estimated to be around 800 million today. This aging population is posing insurmountable
challenges both for the developed as well as developing countries such as Kenya.

Required:

a) Explain five problems associated with old age in Kenya (10 Marks)
b) Explain five solutions to old age problems. (10 Marks)

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