Unpaid pension dues in counties sparks concerns

Counties are holding onto billions of shillings in unremitted pension contributions, making it difficult for the schemes to pay staff upon their retirement, a new audit report shows.

In the County Governments Budget Implementation Review Report for the first half of the 2020/21 financial year, the Controller of Budget (CoB) recommends that the devolved units should develop a remedial plan on how to settle the debts.

The major retirement benefit schemes serving county governments are the Local Authorities Provident Fund (Lapfund), Local Authorities Pension Trust (Laptrust) and the County Pension Fund (CPF).

County employees contribute 12 percent of their pensionable salaries, while the county governments contribute 15 percent on their behalf.

Controller of Budget Margaret Nyakang’o in her report says unremitted pension contributions to CPF and Laptrust stood at Sh26.02 billion as of December 31, 2020, while outstanding remittances to Lapfund amounted to Sh14.57 billion by November 30, 2020.

Delayed remittance

Delays or failure to remit pension contributions attract penalties, which are borne by the counties.

The 47 counties have almost 180,000 workers, according to the Economic Survey 2019.

“These amounts were known by the county governments at the point of budgeting and should be a first charge on the Budget in line with Regulation 41 (2) and 55 (2)(b) of the Public Finance Management ( County Governments) Regulations, 2015.

“The CoB therefore advises counties to immediately settle this statutory obligation and, thereafter, carry out regular reconciliation with the pension institutions,” Dr Nyakang’o said.

Lapfund and CPF are statutory retirement benefit schemes that serve the employees of county governments and affiliated entities.

Unremitted dues

County governments are required to remit contributions from employees alongside employer contributions to these schemes on a monthly basis for investment.

Upon retirement, a member is paid a lump sum comprising the contributions received and the investment income. Counties with the highest unremitted retirement amounts are Nairobi and Mombasa at Sh25,524,654,241 and Sh5,583,466,816 respectively.

Other devolved units with high unremitted dues are Migori (Sh898,228,829), Garissa (Sh773,301,011), Kisii (Sh675,454,865), Wajir (Sh556,865,18) and Trans Nzoia (Sh530,264,908).

Those that owe employees the least pension amounts are Lamu (Sh2,468,750), Elgeyo-Marakwet (Sh3,439,361), Kwale (Sh7,951,521) and Kericho (Sh9,410,855).

“Pension remittances are statutory payments and failure by any county to remit the same has grave implications on budget implementation,” warns Dr Nyakang’o.

Retirement funds

A new law meant to streamline county staff pension services has sparked a battle for the control of billions of shillings in workers’ retirement funds.

The row involves trade unions, governors, the national government and the existing retirement benefit schemes. President Uhuru Kenyatta assented to the County Government Retirement Scheme Act, 2019, on September 18, 2019 and the new law took effect on October 7, with its key provision being to create a new entity by merging the existing ones.

It provides a five-year transition period into the new scheme. Two weeks ago, Lapfund and Laptrust agreed to iron out their differences in order to pave way for the implementation of the new law.

The key parties in the dispute, the Retirement Benefits Authority (RBA) and the Kenya County Government Workers Union (KCGWU), appeared before the Senate’s Labour Committee where they expressed willingness to engage in discussions with a view to ending the standoff. The two, however, maintained they would only participate in talks led by a neutral party and on neutral ground.

KCGWU, which wants the two schemes merged, had moved to court complaining that workers’ input and concerns were ignored during the development of the law. The union complained that parallel operation of the two schemes was a waste of workers’ money.

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