Treasury, counties headed for clash on pension funds

Money Markets

 

Transition Authority chairman Kinuthia Wamwangi (right) with Kitui Governor Julius Malombe during a county governments consultative meeting on pension at the Kenya School of Monetary Studies in Nairobi on Tuesday. Photo/BILLY MUTAI  

By MUGAMBI MUTEGI, pmutegi@ke.nationmedia.com

In Summary

• Sh8.6 billion yet to be remitted to Laptrust and Lapfund since March last year.
• The money is the monthly pension cash for local authority workers whose contributions to the funds were previously settled by the national government.
• After the devolved government system went live in March last year, over 38,000 local authority employees were taken by county governments.

The county and national governments are headed for a showdown over who should pay for Sh8.6 billion unremitted contributions owed to two pension funds after devolution.

It has emerged that most county governments have not made monthly remittances to Local Authorities Pension Trust (Laptrust) and Local Authorities Pension Fund (Lapfund) since March last year.

The money is the monthly pension cash for local authority workers whose contributions to the funds were, before being absorbed by county governments, settled by the national government.

Not only are these payments not being made by the county governments, but some of the county leaders say the burden of footing this bill should fall on the national government.

“The county government is not a successor of local government and therefore the national government should take up these liabilities,” said James Ongwae, the Kisii governor.

“They cannot saddle the county governments with liabilities whose origin we do not understand.”

This situation surfaced during the presentation of a draft report presented to the Transition Authority on Tuesday outlining the formation of a new pension scheme for county employees.

After the devolved government system went live in March last year, over 38,000 local authority employees were taken by county governments.

These employees were either member of Laptrust—a defined benefit scheme set up in 1963 as a pension scheme for local authority employees—or Lapfund.

Lapfund was set up in 1960 as a defined scheme where members contribute money equally with their employer and get a lump-sum payment once they retire.

READ: Governors target pensions to fund county projects

As of December 2012, Laptrust’s investments delivered a net return of Sh2 million while Lapfund made Sh1.09 million.

However, with most local governments not fulfilling these payments these investments are at risk. Also, the failure to remit this money has seen the two funds accrue actuarial deficit for failing to invest this money.

“These two schemes have huge liabilities which must be addressed by both the national and county government,” said David Nyakundi, the Retirement Benefits Authority chairperson who also chaired the committee that authored the report.