Treasury to strip state firms role of remitting pension

Treasury CS Ukur Yatani

Treasury CS Ukur Yatani makes his remarks during the launch of The 8th Corporate Plan for Kenya Revenue Authority (KRA) on June 24, 2021, at the KRA offices. 

Photo credit: Francis Nderitu | Nation Media Group

What you need to know:

  • Treasury seeking options for statutory deductions from the exchequer directly into the civil servant pension funds.
  • This comes as a task force formed by the National Treasury prepares to investigate the challenges facing public sector retirement schemes that to stockpile billions in unremitted arrears.
  • Pending pension bills by state agencies have risen sharply, disadvantaging thousands of retiring civil servants. 

The Treasury has started exploring ways of remitting civil servants statutory deductions into pension funds as part of reforms to deal with the rising number of state firms failing to remit billions of shillings as retirement perks.

It is seeking options for statutory deductions from the exchequer directly into the civil servant pension funds — bypassing non-compliant agencies.

In a disclosure, the Treasury said it was already scouting for a consultant to “develop a mechanism for transferring pension directly into pension schemes without reference to the employer to initiate”.

This comes as a task force formed by the National Treasury prepares to investigate the challenges facing public sector retirement schemes that to stockpile billions in unremitted arrears.

Defaulting agencies

The team will review the financial status of the schemes and the risk posed by defaulting agencies. 

“Despite the existence of an elaborate framework for the management of retirement schemes in the Retirement Benefits Act and the attendant measures put in place to promote financially sound retirement benefit schemes..., the National Treasury continues to receive applications for a bailout from schemes that are insufficiently funded,” the Treasury said.

“The National Treasury and Planning has constituted an inter-agency task force to comprehensively review the challenges facing public sector retirement schemes and recommend policy interventions to foster prosperity and sustainability of the sector.”

Pending pension bills by state agencies have risen sharply, disadvantaging thousands of retiring civil servants. 

The Treasury earlier this year ordered parastatals to include pension dues in their budgets, and submit monthly reports on the status of staff pension contributions, in an attempt to improve compliance.

Penalties

Employers are, under the Retirement Benefits Act of 2020, penalised five per cent of the unremitted contributions or Sh20,000, whichever is higher, for late payment within seven days after getting notice.

The law also allows employers to submit a remedial plan upon payment of the penalty, indicating the timeframe within which the accumulated contributions and interest will be offset.

The frustrations of pension pending bills have spread across most leading State agencies such as the public universities and the Kenya Broadcasting Corporation (KBC) among others.

An audit report by Auditor-General Nancy Gathungu report for the year ended June 2020 shows that cash-strapped KBC failed to remit employee retirement benefits amounting to Sh984.3 million amid a deepening cash flow crisis facing the State broadcaster.

Public universities have also notably defaulted in remitting statutory deductions and are among State corporations that have accumulated more than Sh20 billion arrears in contributions to pension and medical cover benefits.

The defaults have aggravated the country’s pension crisis and exposed thousands of workers to an uncertain retirement at a time the government resource envelope to shoulder the additional pension burden is fast wearing out.

Pension bill

Data by the National Treasury shows that Kenya’s pension bill increased by Sh39.5 billion in the 10 months to April this year, the sharpest growth in five years, underlining the mounting pressure on the Exchequer in paying retired civil servants.

Kenya spent Sh113.72 billion on pensions in the period under review, a 53 per cent jump from Sh74.19 billion in the corresponding period last year.

This is also the first time that Kenya’s expenditure on pensions in the first ten months of a financial year crossed the Sh100 billion mark.

The jump highlights Kenya’s growing pension burden due to the ever-increasing number of workers exiting the public service.

Treasury last year rolled out the Public Service Superannuation Scheme (PSSS) in an attempt to ease pressure on public coffers.

Public servants currently contribute 7.5 per cent of their monthly pay to the PSSS with the government matching the contributions at a rate of 15 per cent of every worker’s monthly salary.

The contributions from the State translate to about Sh6.9 billion monthly contribution or Sh55.87 billion annually, turning pension expenditures into one of the largest budget items.

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