Faculty of Science and Technology

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Browsing Faculty of Science and Technology by Author "John, Andongwisye"

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    Asset liability management for Tanzania: Pension funds by stochastic programming
    (Afrika Statistika, 2018) John, Andongwisye; Larsson, Torbjörn; Singull, Martin; Mushi, Allen R.
    We present a long-termmodel of asset liability management for Tanzania pension funds. The pension system is pay-as-you-go where contributions are used to pay current benefits. The pension plan is a final salary defined benefit. Two kinds of pension benefits, a commuted (at retirement) and a monthly (old age) pension are considered. A decisive factor for a long-term asset liability management is that, Tanzania pension funds face an increase of their members’ life expectancy, which will cause the retirees to contributors dependence ratio to increase. We present a stochastic programming approach which allocates assets with the best return to raise the asset value closer to the level of liabilities. The model is based on work by Kouwenberg in 2001, with features from Tanzania pension system. In contrast to most asset liability management models for pension funds by stochastic programming, liabilities are modeled by using number of years of life expectancy for monthly benefit. Scenario trees are generated by using Monte Carlo simulation. Numerical results suggest that, in order to improve the long-term sustainability of the Tanzania pension fund system, it is necessary to make reforms concerning the contribution rate, investment guidelines and formulate target funding ratios to characterize the pension funds’ solvency situation.
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    Projecting Tanzania pension fund system
    (Statistics and Probability African Society, 2017) John, Andongwisye; Torbjörn, Larsson; Singull, Martin; Mushi, Allen R.
    A mandatory Tanzania pension fund with a final salary defined benefit is analyzed. This fund is a contributory pay-as-you-go defined benefit pension system which is much affected by the change in demography. Two kinds of pension benefit, a commuted (at retirement) and a monthly (old age) pension are considered. A decisive factor in the analysis is the increased life expectancy of members of the fund. The projection of the fund's future members and retirees is done using expected mortality rates of working population and expected longevity. The future contributions, benefits, asset values and liabilities are analyzed. The projection shows that the fund will not be fully sustainable on a long term due to the increase in life expectancy of its members. The contributions will not cover the benefit payouts and the asset value will not fully cover liabilities. Evaluation of some possible reforms of the fund shows that they cannot guarantee a long-term sustainability. Higher returns on asset value will improve the funding ratio, but contributions are still insufficient to cover benefit payouts. Un fonds de pension obligataire en Tanzanie avec un salaire final défini est défini. Ce fonds est un système de retraite à prestations déterminées contributif et payant qui est très affecté par les changements démographiques. Deux types de prestations de retraite, une retraite de rachat (à la retraite) et une pension mensuelle (vieillesse) sont considérés. Un facteur décisif dans l'analyse est l'augmentation de l'espérance de vie des participants au fonds. La projection des futurs membres et des retraités du fonds se fait à l'aide des taux de mortalité attendus de la population active et de la longévité espérée. Les contributions futures, les avantages, la valeur de l'actif et du passif sont analysés. Nos projections montrent que le fonds ne sera pas pleinement durable à long terme, en raison de l'augmentation de l'espérance de vie de membres. Les contributions ne couvriront pas les paiements de prestations et la valeur de l'actif ne couvrira pas entièrement le passif. Une évaluation de certaines réformes possibles du fonds montre qu'ils ne peuvent garantir une viabilité à long terme. Un rendement plus élevé de la valeur de l'actif améliorera le ratio de financement, mais les contributions restent insuffisantes pour couvrir les paiements des prestations.