State officers may begin to contribute to pension fund

 

By GRIFFINS OMWENGA gomwenga@ke.nationmedia.com
Posted  Saturday, April 21  2012 at  16:33

Public servants may start contributing towards their retirement by January next year if a Bill ratified by Parliament on Wednesday receives presidential assent.

The 2012/13 Budget Policy Statement from Treasury indicates pension expenses are set to increase to Sh40 billion in the next financial year, a cost that will be borne by taxpayers.

This represents a 15 per cent increase from Sh34.8 billion last year.

Pension costs have risen by 72 per cent in the five years since the government officially raised the retirement age to 60 for public servants.

And Treasury projects these costs will surge to Sh48 million by 2015.

The World Bank-recommended ratio of pensions cost to a country’s total gross domestic product is 2.5 per cent, but Kenya is fast moving past this mark.

To curb the rise in cost, the Public Service Pensions Superannuation Scheme Bill 2012 seeks to bring about pensions reforms.

It proposes the creation of a Public Servants Superannuation Scheme that would help employees save for their retirement, weaning them off retirement stipends funded by the taxpayer.

Treasury wants to have parastatal pension funds converted into contributory schemes where public servants contribute 7.5 per cent of their basic salary while the government tops this up with a 12.5 per cent contribution.

The idea was conceived in 2005 by Treasury Permanent Secretary Joseph Kinyua, but only 20,000, or four per cent, of 500,000 employees have registered to be considered in the scheme.

Mr Michael Obonyo of the Pensions Department of the Finance ministry told the Sunday Nation the government risks reaching the point where it is unable to underwrite pension expenses unless public servants contribute towards their retirement.

Parastatal and municipal pensions world over have been at the centre of the debt crises in Europe and the United States, a situation Kenya is keen to avoid as the devolved government system begins to take shape.

Consuming tax money

Statistics indicate that pensions expenditure in Kenya is exceeded only by Education, Defence, Roads, and Health ministries in consuming tax money.

Mr Davies Kairu, a pensions expert, has urged the government to emulate the private sector where most employers and employees contribute to the pension scheme to ease the burden on the employer.

But he added that the private sector has areas it needs to improve on as of the 93,000 private schemes registered with the National Social Security Fund, only 3,000 are registered with the Retirement Benefits Authority.

The funding gap–the difference between assets and liabilities held by the NSSF–currently stands at 21 per cent of the funds, with the burden of plugging the deficit falling on taxpayers.

Data from the RBA shows that only 79 per cent of pension liabilities of parastatals are backed by tangible assets. If the President assents, the Directorate of Pensions in Treasury expects the Public Servants Superannuation Scheme to be effected next year.