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Government holds on to very old workers as pension surges to Sh100 billion

By Otiato Guguyu | Published Wed, December 27th 2017 at 00:00, Updated December 26th 2017 at 21:49 GMT +3
Retired teachers (from left) Solomon Uyala, Samson Obonyo and Johnson Menge read a copy of The Standard newspaper under a shade in Rongo, Migori County. The pensioners want to petition the president over unpaid salary and pension increment awarded to them by High Court eight years ago. [Photo: Stanley Ongwae/Standard]

In summary

  • Pension managers have over time raised the red flag on the feasibility of the unfunded pension scheme for civil servants
  • Experts say Treasury estimates on cost of retaining staff are conservative.

The cost of settling pension dues has risen 600 per cent in the past 15 years, with an estimated 20,000 civil servants projected to retire every year.

This worrying trend is said to have rattled the National Treasury.

According to Treasury, the burden of taking care of aged civil servants will double in the next three years.

Pension, which is paid from taxpayers’ pockets, has been skyrocketing from Sh15 billion in 2002.

In this financial year, it is estimated to be Sh71 billion and is projected to rise to Sh86 billion in 2018 and Sh104 billion in 2019.

Experts say that Treasury estimates are conservative and that the pensions due are almost tipping the Sh100 billion mark this year.

“In the current financial year the pension wage bill is estimated at Sh96 billion, up from 15 billion in 2002,” said Fred Nyayieka, the executive director of the Pensions Advisory Centre (K) Ltd.

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In fact, the public service which has enlisted over 800,000 workers, is set to release about 35 per cent of civil servants in the next decade who will reach the mandatory retirement age.

“When the budget is done, we consider the amount we pay as a lump sum, then what the retirees will get each month for the rest of their lives,” Mr Michael Obonyo, the public relations officer of the Pensions Department told The Standard.

“Even when the beneficiary dies, some of the benefits pass on to dependents, so the period is extended,” he added.

Pension managers have over time raised the red flag on the feasibility of the unfunded pension scheme for civil servants, saying a funded scheme where civil servants contribute towards their retirement during their working life would be more sustainable.

Civil servants have since independence enjoyed a defined benefit scheme that is fully paid for by taxpayers through the Consolidated Fund.

This massive growth in the pension bill threatens to put the country’s finances at peril since, like salaries and debt service, pension is paid as a non-discretionary expense - meaning the Government has to pay this before paying for anything else.

In fact, debt service, pensions, and salaries grew from Sh527 billion last year to Sh699 billion this year and Sh795 billion in 2018; more than half of all the tax revenues collected by the Kenya Revenue Authority in the past few years.

“This is something we have been trying to bring to the attention of the National Treasury. At the moment, it is only Kenya that offers a non-contributory pay-as-you-go pension scheme while in other East African countries, public servants fund it,” said Mr Nyayieka.

Huge burden

The State is also carrying a huge burden of old workers which it cannot replace due to their expertise even after they attained retirement age.

Only 19 per cent of civil servants are aged 19-35 while another 13.9 per cent are aged 36-40 and 14 per cent are aged between 41 and 45.

According to experts attending the Knowledge Management Conference held in Naivasha and organised by the Kenya School of Government (KGS), the Government was still retaining more than 1,700 workers who had reached retirement age but their knowledge and expertise are still needed.

When these workers retire they will be paid even higher pensions as the gratuities are calculated with hindsight to the period of service and monthly payment.

This is not the first time the Government is retaining civil servants to postpone settling huge pension bills.

In 2009, the then Public Service head, Francis Muthaura, introduced a policy that raised retirement age for civil servants from 55 to 60 in the hope that it would ease the strain on the pension bill.

For the cash-strapped former President Mwai Kibaki’s administration, it was a temporary relief as it bought itself another five years to raise enough cash to pay the retirement benefits of thousands of workers.

The argument then was that at 55, those set for retirement were still productive.

Others contended that the cumulative on-job experience of this lot was too valuable to be dispensed with that early.

“The Kibaki crop started retiring around 2014, so we do not see them being the force behind the pension growth,” Mr Obonyo said.

The argument now is that since there has been a freeze on employment, there are not enough experienced public servants in the ranks to take over the jobs of the old workers, hence their crucial skills have to be maintained.

According to Vera Obonyo, the deputy director of KSG, the retiring workers had crucial knowledge that was necessary to run the government.

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