Crisis as unremitted workers’ pension hits Sh42bn

The National Treasury building in Nairobi. PHOTO | FILE | NMG   

By CONSTANT MUNDA More by this Author

Thousands of workers at cash-strapped parastatals risk retiring empty-handed after their employers failed to remit monthly deductions to pension schemes, the National Treasury has warned.

The Treasury in the latest disclosures says struggling state-owned entities had not remitted nearly Sh42.06 billion in employer contributions at the end of last financial year.

The boiling pension crisis, the Treasury wrote in the 2024 Budget Policy Statement, poses “a huge challenge to the social security of the pensioners who may retire without a pension”.

Unremitted employer pension contributions are listed as the second biggest pending bills for the parastatals after arrears owed to suppliers of goods and services and contractors of projects.

“The Retirement Benefits Regulations require pension contributions be remitted to a custodian or guaranteed fund within ten days of every calendar month,” the Treasury writes in the 2024 BPS which provides the expenditure ceilings for public entities for the financial year starting July.

“According to the Retirement Benefits Authority, as at 30th June 2023, the outstanding public sector schemes contributions amounted to Sh40.8 billion, excluding penalties and interest charged for late remittances.”

Late remittance of pension deductions is penalised in Kenya at the rate of five percent of the outstanding amount every month the sum remains unpaid. The Treasury data shows pending bills held by parastatals stood at Sh443.6 billion as of June 2023, a figure which rose to Sh448.4 billion last December.

Read: State pay to retirees falls by Sh36bn amid cash crunch

The disclosures have come at a time when the Treasury has estimated pension bills in the public sector to average Sh210 billion annually in three fiscal years.

The Pensions Department at the National Treasury estimates some 85,400 public service workers will retire between the current financial year and the one ending June 2026.

Some 30,155 workers are expected to leave work this fiscal year ending June 2024, with the number expected to fall to 28,745 in the year that follows and 26,500 thereafter, according to the estimates by the Treasury.

The pension bill towards payment of gratuity (paid in lump sum), ordinary pension (remitted monthly), and contribution to the public service retirement scheme is forecast at Sh625.55 billion in three years.

The Treasury has budgeted Sh189.09 billion towards pension expenses in the current year, a value which will climb to estimated an Sh207.85 billion in the 2024/25 financial year and further to Sh228.61 billion in the fiscal year that will follow.

The Treasury data shows the Pensions department had processed claims amounting to Sh59 billion in seven months through January 2024, about 31.2 percent of the full-year target.

The pension expenses triggered by the mass retirements, which have also brought to the fore a job crisis in the ageing civil service, have joined debt expenses in denying the Ruto administration funds it needs for priority projects like roads, affordable housing units, and power transmission lines.

The pressure has continued to pile on taxpayers despite a knee-jerk decision in 2009 to raise the retirement age from 55 to 60, partly due to Treasury’s past failure to push through necessary reforms, including a contributory scheme.

This has seen pension claims, paid directly from the exchequer, surge from Sh25 billion in the financial year ending June 2009 to the Sh189.09 billion estimates for the current year ending June 2024.

The current budget comprises Sh82.93 billion 73.85 billion in ordinary pension, Sh77.56 billion in lump sum pay (commuted pension and Sh28.46 billion in contribution to the public service pension scheme.

Civil servants, unlike workers in the private sector, were until January 2021 not contribute to their pension, and their benefits were paid straight from taxes.

This was after the Treasury rolled out a contributory pension scheme — the Public Service Superannuation Scheme (PSSS) — where public service workers aged below 45 initially contributed two percent of their gross pay towards their retirement savings in 2021, rising to five percent in 2022 and 7.5 percent from this year.

The government contributes 15 percent of the gross pay of the public service worker.

“The Government will also revamp the public service pension administration through digitization and re-engineering of the pension management system, expected to be completed by December 2024. Digitization will streamline processes, improve accuracy, and facilitate timely pension payments,” the Treasury says in the BPS.

Read: Pension fund returns increase to 6.4 percent

“This also enables better monitoring and management of pension-related matters while re-engineering will complement the digitization by availing an end-to-end Enterprise Resource Planning (ERP) solution that takes advantage of the modern IT technologies.”

→ cmunda@ke.nationmedia.com