The Retirement Benefits Authority blames the accumulation of unremitted retirement savings deductions on inefficiencies by pension scheme trustees.
Unremitted pension contributions hit Sh57 billion in December 2024 from Sh47.16 billion in June 2024, highlighting the increased threat to the social security of pensioners.
Public sector schemes accounted for 98 percent of the total arrears due, according to new disclosures by the Retirement Benefits Authority (RBA).
The arrears, which add to the agony of pensioners exiting service without adequate savings, could be larger when added to accrued investment income implying a double-edged hit to affected workers.
“The Sh57 billion arrears is only the principal amount. If you add the investment income, which is a lot, then the unremitted contributions are more,” said RBA chief executive officer Charles Michira.
The regulator has blamed the accumulation of the unremitted retirement savings deductions on inefficiencies by pension scheme trustees, some of whom are at the mercy of their employers.
About 50 percent of each pension scheme board of trustees is made up of the employer’s own staff, including directors and executive members, making it difficult for such officers to enforce the remittances without confronting their employers.
“When this law was designed, it was not expected that employers would deduct and fail to remit and therefore, we put a lot of emphasis on trustees to ensure compliance, but forgot the employer appoints most of the trustees giving room to mischief where the trustees may have no effect,” added Mr Michira.
The RBA now wants the Kenya Revenue Authority (KRA) to be delegated powers to collect the unremitted deductions on behalf of the board of trustees through amendments to the KRA Act.
If adopted, the policy will allow KRA to issue agency notices to employers demanding to collect the unremitted contributions where the employers risk sanctions, including the freezing and attachment of bank accounts.
“The amendment aims to anchor the collection of unremitted contributions as part of the functions of KRA,” the RBA said.
The pile-up in unremitted pension contributions comes at a time when the pension industry is battling a low coverage of the benefits, which stand at a rate of 26 percent.
KRA shall be empowered to specify dates for the payment of unremitted pension contributions by employers, including interest and penalties.
RBA has backed the taxman to help clear the backlog of remittances by presenting a much more efficient enforcer than the board of trustees.
“Why should you deduct and fail to remit? It is purely a criminal offence. We need to delegate the agency powers to KRA for collection on behalf of the board of trustees because KRA has better enforcement powers, including accessing employer accounts,” Mr Michira added.
KRA is already in charge of enforcing various laws unrelated to its direct tax collection obligations, including the Traffic Act, the Second-Hand Motor Vehicles Tax Act, the Betting Lotteries and Gaming Act, and the Stamp Duty Act.
Public universities and county governments have been big culprits of the unremitted pension deductions, implying that the organisations would be in the crosshairs with the taxman upon the adoption of the proposal.
A pension survey by the RBA published last month reveals the plight faced by retirees who do not have adequate pension savings.
More than half of pensioners, or 57 percent, indicated that their savings were inadequate, highlighting concerns over their financial security in old age.
Earlier data from the Kenya National Bureau of Statistics (KNBS) indicated that 81.5 percent of senior citizens above age 60 were still in active employment mirroring the strife faced by pensioners.
