Sh10bn set aside for public servants pension scheme to be rolled out in July

Money Markets

Richard Kipkoech Langat has been confirmed as the managing trustee of the National Social Security Fund (NSSF). Photo/FILE 

By Mugambi Mutegi

Civil servants will from July start contributing to their retirement benefits after the Treasury allocated Sh10 billion to the scheme.

Rolling out the contributory pension scheme is critical to securing long-term sustainability of government finances. The government is struggling under the weight of a runaway wage bill estimated to be more than 30 per cent of the national budget.

Civil servants will contribute two per cent of their monthly pay to the scheme in the first year, five per cent in the second and 7.5 per cent from the third year onwards.

The government will match the contributions with an amount equivalent to 15 per cent of every worker’s monthly pay.

This is in addition to the Sh10 billion seed money it will deposit in the scheme this year. This will see the more than 232,200 workers take home less pay given the freeze in wage increments in the public sector to keep the ballooning wage bill in check.

The wage bill stood at Sh521.6 billion, or 13 per cent of GDP, at the end of the last financial year, rising from Sh458 billion in the previous year. Civil servants, unlike their private sector counterparts, do not contribute to their retirement kitty which is paid from the consolidate fund.

Numerous challenges

The contributory scheme was set to start in 2009 but has been dogged by numerous challenges which have seen its roll-out suspended thrice.

The Treasury has in the past blamed the delays on absence of a secretariat including the appointment of board of trustees and fund managers.

Workers above 45 years will have the option of joining the new scheme or remain in the old scheme where their benefits will be computed based on the length of service and salaries earned.

The new pension scheme was mooted as part of a two-pronged strategy; to stop a looming wage bill crisis, and to delay the pension payments time bomb — a goal that saw the government raise the retirement age from 55 to 60 years.