Growing Gap Between Pension Obligations and Savings a Cause for Alarm

The International Monetary Fund (IMF) has warned of a pension crisis in Kenya as the gap between Treasury’s pension obligations and actual savings grows wider.

The Treasury is now facing pension obligations of up to 2.6 trillion shillings which is about 30 percent of Kenya’s GDP as opposed to what Kenyans pay in taxes, 15 percent of the GDP.

In June 2019, it was revealed that an estimated 20,000 public officers who retired in 2019 were going to get caught up in a pension crisis caused by gaps between pension obligations and actual savings.

The Treasury has for a long time been unable to meet these pension obligations and in 2009, the government, in a bid to delay the crisis raised the retirement age for public officers from 55 to 60.

Stats from the Retirement Benefits Authority (RBA) indicate that the cost of settling pensions has risen by 600 percent in the last 15 years with an estimated 20,000 civil servants projected to retire every year.

This is because Kenyans registered in pension schemes have grown from 600,000 in 2006 to 3.2 million as of July 2019.

Retirement dues, which are currently paid from tax collections only, rose from 86 billion shillings in 2018 to 104 billion shillings in 2019.

Currently, the retirement scheme by the government, which is non-contributory is unsustainable, since it is supported by taxes paid by citizens.

The IMF has called on the government to institute reforms in the pension sector that include changing the government scheme into a contributory model from tax-funded.

The government has taken some steps to reform its pension scheme since the National Treasury has now decided to gazette the much-delayed Public Service Superannuation Scheme (PSSS) Act 2012, requiring about 70,000 civil servants to start contributing to their pension saving in four months.

Once gazetted, public officers will contribute 7.5 percent of their salary towards retirement while the government makes a contribution to their retirement at the rate of at least 15 percent of each member’s monthly pensionable salary.

The PSSS will also allow a member to make a voluntary addition to their contributions towards their retirement benefits.

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