A design of a pricing model for a micro pension product for the informal sector case study – Safe Boda Riders
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The main objective of this project was to design a micro pension product for the informal sector, specifically the safe boda riders. This pension product provides a death benefit, and an income protection benefit in case of loss of income due to an accident. It will issue a certain lump sum if the member of the policy decides to withdraw from the plan. The minimum term is fixed to be 3 years which means nothing is paid except in case of death or if the policyholder withdraws. On retirement, a third of the fund value is given as a lump sum and the rest converted into a guaranteed annuity of 5 years and life thereafter. In case the motorcyclist is injured during his work, he receives the current value in the fund. The target market are the Safe boda riders because in Uganda; many of them are not registered in pension schemes and yet deducting contributions to assure continuity of the scheme would be hard. The motorcycle rider, being in the informal sector, may face many challenges if he gets injured and yet he is the sole bread winner of the family or even dies leaving his family behind. Therefore this product enables the family to get the benefits. Typically, a 25-year-old rider who has been in the policy for 25 years after paying the already stated amount will receive Ushs 17,876,297.94 for retirement which consists of Ushs 5,958,765.93 paid as a lump sum and the Ushs 11,917,531.96 is converted into an annuity of 2,067,780.06 for 5 years and life thereafter The product was designed using the method of profit testing to produce the amount to be paid to the member of a scheme after a certain time in the plan but also yield the desired profits to the pension scheme.. .The assumption variables found to be varying the profit margin using the profit testing are namely the interest rate and the management charge, it was also noticed that the profit margin was unaffected by a change in sum assured.