A model to design a micro-pension product with a temporary annuity for small scale farmers in Uganda

Abstract

The major objective of this research was to design a micro-pension product that would pay out a temporary annuity on maturity to coffee farmers in Uganda to enable the sustainable increase in coffee growing from one generation to another. According to a report by Uganda Coffee, it is estimated that about 1.7million households depend on coffee farming and if anything (accident or death) would happen to the farmer who is the head of the household, this could cause financial constraints in the family because currently there is no pension product on the market for farmers in Uganda. The specific objectives include first and foremost to design a pension product that achieves a profit margin of at least 3.1%, secondly to design a product that targets a niche market of small-scale coffee farmers in Uganda, thirdly to design a pension product that incorporates unique features including disability benefit given to the farmer who gets involved in an accident and a death benefit given to the dependents in case of death of the farmer, last but not least to design a pension product that targets a niche market of small-scale coffee farmers in Uganda, lastly to design a pension product that will enable me carryout sensitivity analysis to establish the most significant variables that affect the profit margin. The profit testing method was used to determine the price of the product. Using the profit testing method, the following results were obtained; taking an example of a typical farmer aged 25 who takes out a 30-year term contract contributing 200,000 Uganda shillings is entitled to a temporary annuity of 392,639 Ugandan shillings every year for fifteen years. The above results were tested by varying the assumptions. The key assumption that was found to be significant is management charge and it would require constant monitoring and repricing done if it varies so much from the acceptable range.