EASING BURDEN

Civil servants contributory pension kick of on January 1

They will be paying 7.5 per cent of their salaries starting January 1

In Summary
  • This will help the government ease its pension liability estimated at Sh2.6 trillion. 
  • The government will give them 15 per cent, a departure from a norm where it used to shoulder the whole burden. 
The Treasury Building. Senate, National Assembly feud over funds for counties.
TREASURY BUILDING: The Treasury Building. Senate, National Assembly feud over funds for counties.
Image: FILE:

Close to 500,000 civil servants will staring January partly play for their pension easing pressure on the country's consolidated budget.

They will contribute 7.5 per cent of their gross salary under the new pension scheme while the government will put in 15 per cent, a departure from where it previously shouldered the whole burden. 

Yesterday, the National Treasury held a sensitisation programme for chief administrative secretaries, principal secretaries and CEOs of state agencies. 

The scheme's consultant Boniface Mwangi said employees will remit 2.5  per cent in the first year, five per cent in the second year and 7.5 per cent going forward. 

 

The civil service has been running an unfunded pension scheme, which has been increasing over the years, piling pressure on the already overstretched debt and consolidated obligation. 

In 2014, the Salaries and Remuneration Commission (SRC) conducted a  valuation of public sector pension liabilities, which disclosed a public pension liability of Sh990 billion. This has since stretched to Sh2.6 trillion — about 30 per cent of GDP.

It is much higher than what Kenyans pay as taxes. The country’s tax collection aggregate currently stands at 15.6 per cent of GDP.

As more employees retire from civil service, pension liability is expected to rise to unsustainable levels in the future, largely due to the existence of non-contributory pension schemes in the public service, salary reviews and increased recruitment.

Pension cost at the current level crowds out spending on other key areas social-economic areas like health, education, agriculture and infrastructure. 

 

Records on the current service pension scheme indicate there are 375,000 teachers, 128,000 police and prison staff, more than 270,000 pensioners and 75,000 dependants. 

National Treasury Chief Administrative Secretary Nelson Gaichuhie said once rolled out, the current Public Service Pension arrangement will be closed to all new employees and all serving employees who will be aged below 45 years as at January 1, 2021.

According to government records,  there will be over 333,460 public servants who will be below the age of 45 Years as at January 1,  2021. 

Under the new scheme, civil servants attaining retirement date will be allowed to access their own accumulated contributions and a further 50 per cent of the Government portion on leaving service.

Past government efforts to introduce a pay cut for civil servants to fund pension schemes have been contested leading to the delays in its implementation.

The deal to set up the new scheme under the Public Service Superannuation Scheme (PSSS) Act of 2012 was reached during the National Wage Bill Conference held last November. 

The Conference discussed, among other things, the management of the public sector pension liability for a fiscally sustainable public sector wage bill.

The fund will be regulated by the Retirement Benefits Authority (RBA).