Treasury postpones roll out of civil servants’ retirement scheme

Treasury Cabinet Secretary Henry Rotich. He said the scheme which was to commence on July 1, would take an extra six months to be set up.. PHOTO | FILE   NATION

In Summary

• Currently, the taxpayer bears the full burden of financing the retirement benefits of government workers which hit Sh96 billion last year.
• “The government has set up Sh7 billion for the half year from January 2015 to the end of the current financial year as we still put in place the administrative and legal framework,” Mr Rotich said.

By RAMENYA GIBENDI
More by this Author

Roll-out of the civil servants contributory retirement scheme has been postponed to January 2015, as Treasury battles to put in place plans to manage the funds.


Treasury Cabinet Secretary Henry Rotich Friday said that the scheme, which was to commence on July 1, would take an extra six months to be set up.

“The government has set up Sh7 billion for the half year from January 2015 to the end of the current financial year as we still put in place the administrative and legal framework,” Mr Rotich said.

The Cabinet Secretary was speaking on the sidelines of the official opening of the Alexander Forbes Investment Conference 2014 that brought together pension funds, fund managers and clients.

This is the third time the government is delaying to put in place what is considered a sustainable retirement plan for civil workers.

The roll-out of a contributory pension scheme is deemed as critical to safeguarding long-term sustainability of state resources in the face of runaway wage bill.

TRANSITION

Currently, the taxpayer bears the full burden of financing the retirement benefits of government workers which hit Sh96 billion last year.

Civil servants are expected to make a monthly contribution of 7.5 per cent of their salary phased in three years each at 2.5 per cent to allow a seamless transition.

Mr Rotich said that the government will then match the contributions with an amount equivalent to 15 per cent of every worker’s monthly pay to bring the total contribution to 22.5 per cent of a worker’s pay.

As a consequence, Mr Rotich said it is estimated that the government will be spending Sh15 billion annually if the scheme is successfully launched.

Under the scheme, civil servants will also benefit from a state-sponsored life insurance worth a minimum of five times an individual’s annual pensionable remunerations.

“Currently, all civil servants retire as they go but with the scheme, they will be enjoying benefits of a pension fund as opposed to relying on taxpayers money,” Alexander Forbes chief executive officer, Sundeep Raichura said.

Mr Raichura said that the government needs to fast-track implementation of the scheme as the burden of paying retirees keeps growing each year. About Sh45.9 billion is expected to be paid to pensioners in the current financial year under the Defined Benefits Scheme.