National Treasury Cabinet Secretary Ukur Yatani at a past event. In his budget speech last year, he announced that the Public Service Superannuation Scheme would become operational in July 2020, but this did not take effect.
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Public servants take salary cut in new pension plan
What you need to know:
- Deductions to finance the State workers’ newly introduced mandatory retirement savings plan.
- Knut backs government’s move, saying the scheme will be good for teachers.
Civil servants, teachers and security forces are having to re-organise their budgets after taking a two per cent cut on their January payslips.
The deductions will go towards financing the State workers’ newly introduced mandatory retirement savings plan, known as the Public Service Superannuation Scheme (PSSS).
Retired public servants have been receiving lifetime pensions paid directly from the exchequer, but the new scheme will see them now shoulder a portion of the ballooning pension burden that hit Sh109 billion last year.
The public workers’ unions have for years resisted the contributory scheme, leaving taxpayers to shoulder the whole burden of keeping retired civil servants comfortable. The PSSS Act was assented to on May 9, 2012, but it has never been effected even as the pension pay-outs increased sharply every year.
Ticking time bomb
The annual pension bill was expected to increase to Sh109 billion starting July from just Sh15 billion in 2002. The retirement pay-outs are expected to rise to Sh153 billion by June 2022, a 20 per cent rise, reflecting the growing burden that has been described as a ticking time bomb.
Treasury Cabinet Secretary Ukur Yatani, in his national budget speech last year, announced that the PSSS would become operational in July 2020 but this did not happen.
“There is potentially significant risks associated with sustainability of the pension scheme. The government has not undertaken a full actuarial valuation of the future obligations of its non-contributory defined benefits pension fund scheme,” the IMF warned last year, citing a World Bank study that has estimated this obligation to be close to 30 per cent of GDP.
The Treasury only publishes the amount of money it sets aside to pay retired workers each year.
The 2018 IMF Fiscal Monitor report had put the net present value of pension at Sh819 billion. The two per cent deduction is a phased implementation of the scheme, and is expected to rise to five per cent next year and finally to 7.5 per cent in 2023 to make the transition to a contributory plan complete.
For female employees, the deduction will be a new thing as they have not been contributing to the Widows and Children’s Pension Scheme (WCPS), which their male counterparts do. For men, the WCPS has been discontinued and the amount they previously contributed converted into the PSSS. NSSF contributions will also cease after employees move to the new scheme.
A must for all workers
The government will top up the pension kitty with a 15 per cent contribution. PSSS is mandatory for all workers who are under 45 years old. Those above the age limit have the option of joining it or remaining in the older scheme.
The PSSS will cover all government employees who are recruited through the Public Service Commission, the Teachers Service Commission, the National Police Service Commission, or “any other service that the Cabinet secretary determines to be public service for the purposes of the Act”.
Kenya National Union of Teachers (Knut) has backed the government’s move, saying that it will be good for teachers as they will readily access their benefits upon retirement. Teachers can voluntarily retire after attaining the age of 50. Those who quit before attaining the retirement age can move their accumulated contributions to the new employer’s retirement scheme, just like workers in the private sector do.
Equally, employees who leave government service before the mandatory retirement age (60 years), will access 100 per cent of their accrued savings plus 50 per cent of the government contribution.
“We have no issue with the deductions as we participated in the conception of the scheme and even hired an actuary to advise us. We are convinced it’s a good thing. It is even contained in our 2017/2021 CBA where we requested that teachers be moved to a contributory scheme,” Knut Secretary-General Wilson Sossion told the Nation.
He explained that the workers’ contribution will be under the management of trustees, where the union has a representative, and not the government. The trustees are currently undergoing training on the management and investment of the fund. Knut is represented by its national treasurer, John Matiang’i.
New government employees will now join the PSSS as the Public Service Pension has now been effectively discontinued for all those under 45 years of age.
