Public service pension pay lags target by Sh16.44 billion despite 25pc jump

National Treasury & Economic Planning Cabinet Secretary Prof Njuguna Ndung'u on May 17, 2023. PHOTO | DENNIS ONSONGO | NMG    

By CONSTANT MUNDA More by this Author

Payment to retired public service workers lagged the target by Sh16.44 billion on a prorated basis despite growing by a quarter in the first quarter, signalling the growing burden of a fast-ageing civil service on taxpayers.

The Treasury's Pensions Department processed Sh30.83 billion in payments to retirees in three months through September, official data show.

That represents a jump of 25.85 percent over Sh24.50 billion in a similar period last year when the country was preparing for a transition from the previous administration of Uhuru Kenyatta.

Read: CPF gets nod to launch civil service pensions

The pension payroll for the three months, however, is behind the prorated target of Sh47.27 billion, going by the full-year goal of Sh189.09 billion.

The rising expenses for retirees, triggered by the mass retirements, have joined debt expenses in denying the Ruto administration funds it needs for priority projects like roads, affordable housing units, and power transmission lines.

In order to ease the burden of pension payments, the government will continue with implementation of the Superannuation Scheme for civil servants below the age of 45 years that was rolled out in January 2021,” Treasury Cabinet Secretary Njuguna Ndung’u wrote in the draft 2023 Budget Review and Outlook Paper for the current financial year.

The Treasury rolled out a contributory pension scheme 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.

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

Some 30,155 workers are set 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 is projected to rise to Sh207.85 billion in the 2024/25 financial year and further to Sh228.61 in the fiscal year that will follow.

“With the increasing number of retired officers, dependents, and the increased life expectancy rate, the pension wage bill has been rising exponentially posing a fiscal risk,” Prof Ndung’u wrote in the 2023 Budget Policy Statement (BPS), a document that provides an expenditure guideline for the government.

“To further mitigate the fiscal risk, the government will ensure timely remittance of the required contribution to defined contribution schemes to reduce possible litigation costs and encourage appropriate investment choices.”

Read: Treasury plans to scrap tax on early pension withdrawals

The pension’s payroll has been soaring in recent years on the back of a fast-ageing public service, piling pressure on taxpayers on the back of delays in implementing reforms in the past.

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.

The Pensions Department usually targets to process an average of 600 files per week, with payment expected after 21 days.

→ cmunda@ke.nationmedia.com