We are facing a pensions time bomb

The Treasury building in Nairobi. High under-subscription of Treasury bills and bonds exerted pressure on the State’s spending plans, forcing it to turn to external borrowing. Photo/FILE  Nation Media Group

By Jaindi Kisero

We are surely approaching a pensions time bomb in Kenya. In the current financial year, the government has allocated Sh6.9 billion to pay pensions to civil servants and teachers. This money is going to come from the taxes you and me pay.

Is it really fair? Why should the government spend my hard-earned money to pay pensions for civil servants and teachers when I have to contribute money to fund my own pension?

More than ten years since the government started talking about introducing a contributory pension scheme for civil service and teachers, nothing has been done.

Instead of thinking about comprehensive and sustainable systems of retirement income support, our policy makers prefer to engage in mere gestures.

For instance, in the budget for this current financial year, Treasury secretary Henry Rotich announced that he had tripled the cash transfer amounts given to the elderly. Is this a sustainable way of approaching social security?

Since the number of retirees increase every year, shall we be increasing the cash transfer amounts to the elderly every year? Why is the government finding it so difficult to introduce a properly funded pension scheme for teachers and civil servants?

Five years ago, the government increased the retirement age of civil servants and teachers from 55 to 60 years. The upshot is that – come the next financial year- many more civil servants and teachers will be hitting the age of 60 and therefore retiring from the civil service.

And, the pension liability will be higher because most of these cadres will be quitting the civil service at much higher salaries. When it comes to social security, our policy makers miss the point all the time.

We are ready to discuss and negotiate new packages for teachers, doctors and nurses and to debate harmonisation of wages across the public sector, but don’t look at the implication of these salary increases on the pensions bill.

Yes, we have a mandatory pension scheme in the name of National Social Security Fund (NSSF), but it covers a very small part of mainly salaried employees.

Worse, low monthly contribution ceilings, high cost of administration, low returns on the investment portfolio and low returns apportioned to member accounts – have resulted into meagre lump sum benefits at retirement.

Social security is about reasonable replacement of pre-retirement income. Although civil servants and teachers enjoy modest replacement rates at retirement, such benefits are quickly eroded by inflation leading to limited income smoothing.

Granted, and thanks to the Retirement Benefits Authority, unfunded liabilities in a good number of retirement schemes sponsored by parastatals have gone down. But we still can’t say that most of the large parastatal schemes are funded well enough to deliver the promised pension benefits at retirement.

In his Budget speech last week, Mr Rotich said that the government plans to radically overhaul the
Retirement Benefits Authority Act. That may be important. But the priority of priorities in this sector is implementation of the proposed public sector superannuation scheme. The more properly funded schemes we have the better.

President Uhuru Kenyatta has created a new ministry for social security. It must come up with a comprehensive national social policy.