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Pension plan gives ray of hope to retirees

BUSIA
By | August 14th 2011

By Luke Anami

Parliament is the only remaining hurdle between civil servants and a new pension scheme.

Should the House enact the Superannuation Bill 2011 into law, civil servants would enjoy a defined contributory scheme, different from when the Government was the sole contributor. The Bill is before Parliament.

Under the new system, the workers will give 7.5 per cent of their salaries to the scheme while the employer will provide 15 per cent.

Further, the pension scheme is compulsory for employees aged 45 years and below.

This is the first time civil servants will enjoy a contributory pension cover as their counterparts in the private sector in a move likely to make the public sector competitive in the labour market.

"The Superannuation Bill 2011 has been published and is before the House Committee on Finance. Kenyans are free to give their views," Public Service Minister Dalmas Otieno said in an interview with The Standard On Saturday.

"Once the Bill is passed into law, the fund will appoint trustees to run it as specified in the Act," he added.

However, Union of Kenya Civil Servants Secretary General Tom Odege said though the union supports the idea, they would be part to it if the Government was not going to run the funds.

Fund managers

"The Government should transfer pension funds to a separate account once the scheme is in place. Failure to do so will see us oppose the scheme. The Government should appoint fund managers," Mr Odege said.

But Dalmas allayed the fears saying once enacted, the law provided for a Superannuation Fund to be managed by officials independent of Government, including the union.

"The law provides for a separate Fund to run the scheme," he said.

Civil servants, who have been serving on temporary terms and were contributing to the National Social Security Fund, would be admitted to the new scheme.

He further said civil servants with more than 10 years of service would not lose their pension should they transfer to the contributory scheme.

"The Superannuation Act, section 50, is very clear for employees who have been in the Civil Service for long. Their pension will be converted into a bond that will earn interest. So they will not lose their pension for the period they may have served," Dalmas noted.

The Public Service Superannuation Scheme Bill 2011 proposes a life insurance policy that has disability benefits for members.

Should a member be disabled during employment, he or she shall be entitled to a minimum pay five times their annual pensionable wage. The life insurance policy will be an additional benefit to the Government’s contribution to the scheme at a rate of 15 per cent of each member’s monthly pensionable pay.

This is expected to benefit local life insurance firms, whose premiums could double once it is rolled out, offering the sector a new growth opportunity.

The contributions will be graduated, with members contributing at the rate of two per cent in the first year, five per cent in the second year, and five per cent in the third and subsequent years.

"The Government is keen to share the pension burden with its workers by introducing a contributory scheme to ease retirement expenditure, which stands at Sh26 billion this financial year," says Michael Obonyo, the Treasury public relations officer.

Once the scheme comes into operation in January next year, the share of Government contributions are expected to go down by up to 10 per cent in what is aimed at cutting the ballooning Pension Bill of Sh26 billion a year.

"The amount in the consolidated fund has been growing gradually. It was going to reach a level where it could not be manageable," Obonyo added.

The Government has been operating a defined benefit pension whose payout is fixed to a formula. The formula is a combination of years of service multiplied by a percentage of average salary.

"Previously, civil servants never used to contribute but in this new one, they will contribute," Public Service PS Titus Ndambuki said, during the launch of guidelines on bonding Public Service trainees last week.

"Civil servants employed in 2009 to date are automatically being deducted seven per cent for the purposes of the pension scheme," he said. Those employed before 2009 and have worked for more than 10 years will have their pension scheme converted into a bond.

The Treasury handles an average of 200 new claims per month at a cost of Sh500,000 in lump-sum payments for death, added to the monthly pension disbursement roll.

And with more than 200,000 retirees drawing monthly pension from the Government, including former employees of the disciplined forces, teachers, Parliament, semi-autonomous State firms and former employees of the colonial Government, the new scheme offers a ray of hope to those who wish to join the public service.

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