Sh65 billion firm that won’t pay retirees Sh3, 000-a-month pension

After 35 years of service, Mr John Kivunga wa Njuki walked out of the Kenya Railways Corporation (KRC) in 1998 with his head up, satisfied he had had a successful career.

Having worked in various capacities at the corporation, including as a clerk and a yard foreman since 1963, Mr Wa Njuki was all set for retirement. He was secure in the knowledge that he would be moving to his home in Kahawa West and would be getting some Sh3,000 as monthly pension.

“The pension was small but constant and I was happy with that,” Mr Wa Njuki says.

Queue for hours

The happiness and contentment would, however, be short-lived since a few years later, along with hundreds of other retirees of the Kenya Railways, Mr Wa Njuki started experiencing inconsistencies in the payment of pension.

“It came a time when we were getting money through the window in the cash office. We would queue for hours only to be told there was no money and the officers would end up giving us Sh20 or Sh50 for bus fare,” Mr Wa Njuki, now in his 80s, says.

He recalls scenes of pensioners collapsing and dying in the long queues around 2004.

At that time, the KRC was experiencing serious operational issues, was technically insolvent and had failed in its financial obligations.

At that time, Mr Isaac Amuma, 80, who had also served the corporation between 1969 and 1994, was undergoing a similar ordeal.

After many journeys from Nyanza to Nairobi for his hard-earned cash, he had come to realise one thing.

“The government is a bad debtor. It does not pay what is required of it consistently and in good time. We fear that most of us will probably will go to the other side of the world without getting our real value,” Mr Amuma says.

“In fact, we were moved to a scheme because the railways, who were paying us pension, were unable to pay. So, some people would not get their cash after queuing, some died on the queue and as you reached the window to get your money, you would be told that the money was no longer there,” he told the Nation.

By 2006, the KRC had accepted the bitter reality that it would no longer be able to pay its pensioners.

Settle debts

So the parastatal approached the government seeking a bailout. The government turned down its request and asked it to sell some of its properties to settle the debts.

Come October 31, 2006, the corporation’s management, after failing to secure a bailout from the government, resorted to relieving all its employees of their duties, created the Kenya Railways Staff Retirement Benefits Scheme and transferred them to it.

The scheme started with 12,000 members and to the people who were already part of the corporation’s retirees, it came as a fresh breath of air in a messy sector.

“But given the rate at which pensioners are dying of old age, in the next five years or so we shall be perhaps 6,000 or thereabouts,” says Mr Johnson Miano, the chairman of the Kenya Railways retirees.

Mr Miano says 4,000 pensioners have already died since 2006, when the scheme was formed, most of them before being paid by the scheme.

The problem with the scheme is that it cannot generate enough revenue to sustain monthly payments to pensioners.

As a result, they have to wait for months to be paid, burdening their families with needs that come with old age.

They are bitter with the government for neglecting them in their time of need, yet they spent their productive days serving the country.

“The worst thing for a pensioner is to rely on his or her children for survival as they too have their own responsibilities. They are grown-ups, married with children to take to school and transferring your problems to them is both unfair and very painful,” says Mr Amuma.

Verge of collapse

In September, the pensioners petitioned the Senate, citing mismanagement, non-payment of their dues and issues to do with disposal of the scheme’s property in order to pay them.

The pensioners further complained that that the scheme was on the verge of collapse.

In a report tabled in the Senate on November 10, the Standing Committee on Labour and Social Welfare noted pensioners had not been paid 12 months’ benefits and the KRC, as the sponsor, had failed to effect mandatory annual pension increase of 3 per cent per annum accrued with effect from January 1, 2014.

“This scheme has an outflow of about Sh70 million a month but the only income they generate is Sh40 million. So, no matter how you look at it, there will always be that shortfall. The Sh5 billion deposits on the KR land secures six years (of payment of benefits to pensioners),” said the House team’s Johnson Sakaja.

Senator Sakaja was referring to a 17-acre parcel at Lunar Park in Nairobi that the government wants to acquire from the scheme.

The land is estimated to cost about Sh17 billion, according to the pensioners. Treasury says it already has a deposit of Sh5 billion.

“After the disposal of certain assets, we will make sure that for 10 years, we will not have a problem with KR,” Mr Sakaja told the Senate.

The committee expressed concerns over sustainability of the scheme, directing the Retirement Benefits Authority (RBA) to share its plans to ensure debt recovery and the scheme’s property disposal are done as per the law.

“We have asked for investment policy and action plan to be given to us within 14 days. In addition, we have asked for certain audits to be done. We have asked for a forensic audit on the scheme’s operations by RBA from its inception, to look at World Bank grants funds that were given to the scheme to kick-start its operations, the rent money that the scheme has been collecting and its usage since its inception and the debt owed to the scheme, including by the Kenya Railways Corporation,” Mr Sakaja said.

Conflict of interest

The committee also wants the Auditor-General to independently audit and report on the status of the scheme’s assets and the composition of its Board of Trustees due to issues of conflict of interest.

“I want to assure the petitioners, the Sponsor, Kenya Railways and the National Treasury that we are not done with this matter. I want to put all other Government schemes with money owed to our pensioners on notice that we are on you,” Mr Sakaja said.

The scheme has assets worth about Sh65 billion, according to Mr Miano, including rental properties in Upper hill, Muthurwa and the Head Quarters, and parcels of land in Makongeni, Lunar Park and other places around Nairobi.

It has, however, not managed to generate sufficient revenue from renting and leasing the property, with other properties such as the one in Muthurwa being occupied free of charge.

“We must get extra income, which should be from continuous sale of property. Without sale of property, the scheme cannot sustain payments to pensioners,” Mr Miano said.

The scheme’s net pension bill is about Sh65 million per month.

The scheme is managed a Board of Trustees, constituting of nine members; three elected by the pensioners and six appointed by the sponsor Kenya Railways.

Mr Henry Wamukota Toili, one of the elected trustee, told Nation they inherited the scheme without any money in the account.

Mr Toili confirmed that the scheme has had to borrow loans from the Kenya Commercial Bank (KCB) in order to settle pensioners’ benefits.

He acknowledged that the only way out of the financial mess was selling its assets.

“But the other challenges we have been experiencing is pensioners themselves suing to block sale of some of the property, even though the proceeds would be used to pay them. Unable to sell the property, we have failed to pay benefits in time,” Mr Toili explained.

According to RBA regulations, pension schemes are supposed to sell 70 per cent of their properties and keep 30 per cent, so that the proceeds are used to settle benefits.

In particular the sale of Railway Club land would improve its cash flows and both parties want the government to pay for the property quickly.

KRSBS is a closed scheme, meaning it cannot attract new pensioners and with time it will fade away.

And even though the pensioners Nation spoke to accused KRC management of interfering with the running of the scheme, Mr Toili defended the parastatal.

He said the scheme would not survive without its sponsor, KRC.

“It’s we the trustees who run the scheme and we haven’t experienced that challenge. We haven’t complained that KRC is interfering with our operations. The sponsor is like our father and mother, we would not survive without it,” Mr Toili said.

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