Asset liability management for Tanzania pension funds by stochastic programming

John Mwakisisile, AndongwisyeDepartment of Mathematics, University of Dar es Salaam, Dar es Salaam, Tanzania (author)

We present a long-term model 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.

NATURVETENSKAP Matematik Annan matematik hsv//swe
NATURAL SCIENCES Mathematics Other Mathematics hsv//eng
Pay-as-you-go pension fund; asset liability management; stochastic programming; scenario trees

Larsson, Torbjörn,1957-Linköpings universitet,Optimeringslära,Tekniska fakulteten(Swepub:liu)torla64 (author)
Ohlson, Martin,1977-Linköpings universitet,Matematisk statistik,Tekniska fakulteten(Swepub:liu)maroh70 (author)
Mushi, AllenDepartment of Mathematics, University of Dar es Salaam, Dar es Salaam, Tanzania (author)
Department of Mathematics, University of Dar es Salaam, Dar es Salaam, TanzaniaOptimeringslära (creator_code:org_t)

In:Afrika Statistika: The Statistics and Probability African Society Discipline(s)13:3, s. 1733-17582316-090X

By the author/editor: John Mwakisisile ...; Larsson, Torbjör ...; Ohlson, Martin, ...; Mushi, Allen

About the subject

NATURAL SCIENCES: NATURAL SCIENCES; and Mathematics; and Other Mathematic ...

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