Civil servants to lose 7.5 per cent of pay in new pension deductions

More than 70,000 civil servants will from July 1 start contributing to a mandatory pension scheme in a move designed by the government to reduce the amount it is spending on its retired staff.

According to the Public Service Commission (PSC), the new fund will be guided by the Public Service Superannuation Scheme Act of 2012 which spells out how much every employee should contribute. At the same time, part of the government’s contribution will be a direct charge on the Consolidated Fund.

The implementation of the delayed pension scheme, Saturday Standard has learned, has been informed by the huge amount the government pays to cater for the 270,000 pensioners. Last year, the government paid out Sh86.2 billion compared to the Sh15 billion it paid in 2002.

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“The amount of money we are spending on pensioners is almost equal to what is used to pay the 70,000 civil servants currently. If nothing is done, in the next five years this will be untenable,” said PSC Chairman Samwel Kirogo.

The government’s wage bill stood at Sh287.8 billion last year. Civil servants are part of a large number of about 1,000,000 public servants who are drawn from the police, military, teachers, the 258 parastatals, State agencies and bodies, public universities and the 47 county governments.

To underscore the challenges the government is facing in funding the huge bill, Kirogo said some of the pensioners who retired in the 1960s are still beneficiaries of the pension.

“We have a pensioner who started earning his salary before independence and he just died last year. We will still pay his family for the next five years. The numbers keep on rising and unless we have a strong scheme, the burden on the exchequer will be enormous,” he said.

There have been attempts to kick-start the new scheme, but the move has always been dogged by hiccups that delayed its implementation.

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An attempt by the government to implement it from October 2018 failed after the Sh15.3 billion allocated in the 2018/19 financial year was diverted to other uses.

National Treasury Cabinet Secretary Henry Rotich had projected that he would push the allocations from Sh15 billion to Sh33.8 billion over the medium term.

Initially, government workers were supposed to contribute two per cent of their monthly salary to the scheme in the first year, five per cent in the second and 7.5 per cent from the third. The government was to top it up with the exact amount.

This means every civil servant will be contributing a total of 15 per cent on a monthly basis which will be doled out after one attains the retirement age of 60 years.

Last Thursday, while reading the National budget for the 2019/20 financial year, Rotich underscored the impact the payment to retirees has on the struggling economy. 

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He said the ballooning wage bill was a serious concern and as a consequence, the government had proposed various mechanisms to curb it, including pension reforms.

Under the reforms, Rotich said some pension benefits may be scrapped to ease the burden on the exchequer. He, however, did not specify or give details of the new pension measures or how they will be implemented 

“The pension budget has increased by over three-fold in the last 10 years from Sh25 billion in 2008/09 to Sh86 billion in 2018/19. This is unsustainable,” he said.

Clean-up

Rotich further revealed that in May 2019, Treasury conducted a clean-up exercise at Huduma Centres countrywide and ascertained that there are 270,000 pensioners and dependants receiving money from the government.

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Under the new pension scheme outlined by PSC, a junior civil servant in Job Group A earning a salary of Sh8,910 will have to part with Sh668 every month, an amount that will be matched by the government which must contribute 15 per cent of the employees salary.

The highest paid civil servant at Job Group T who takes home Sh152,060 will have to forfeit Sh11,404 for the pension and the employer will top up with double the amount.

The contributions will be channeled to the Public Service Superannuation Scheme, which was established in 2012 through Public Service Superannuation Act no.8 of 2012.

“A person who at the commencement of this Act is employed in the public service on a permanent and pensionable establishment and has not attained the age of 45 will be a member of the scheme,” reads the Act.

For a public servant to qualify, he or she must have worked for 10 years. The public servant will make mandatory contributions as dictated by the Act “at the rate of seven and a half per cent which shall be deducted from his monthly pensionable emoluments”.

The pension scheme will be run by a 10-member board of trustees. The board’s chairman will be appointed by the Cabinet Secretary and the trustees will be drawn from the ministries of Finance and Public Service.

Others with a seat at the board will be the Inspector General of Police or his representatives and members representing the Kenya Union of Teachers (Knut), Kenya Union of Post Primary Education Teachers (Kuppet) as well as the Kenya Union of Civil Servants.

The scheme’s chief executive officer will also be an ex-official member of the board. 

The Act further provides that “the government shall take out and maintain a life insurance policy that has disability benefits in favour of every member of the Scheme, for a minimum of five times of the member’s annual pensionable emoluments.”

Public Service Cabinet Secretary Margaret Kobia is expected to gazette the notice so as to set the commencement dates.

In the new scheme, civil servants who would like to make additional voluntary contributions will be allowed to do so but will be subject to guidelines to be set by the Board of Trustees.

Performance measurement

Meanwhile, in a bid to streamline the lengthy promotion process which for a long time has been based on the number of years one has worked in a job group, PSC is in the process of implementing a new scheme.

This scheme will see a performance measurement tool which will leap frog talented officers who are high performers without necessarily waiting to serve mark time in a grade for three years.

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