How Uhuru’s mega projects are thinning take-home pay

A shilling today is more valuable than a shilling tomorrow. And if you are a pensionable employee, the Government has some bad news for you. Unless you are really sick, retiring early or leaving the country, then forget accessing a dime of your employer’s contribution towards your pension’s kitty.

“Don’t worry,” says the Government on the new amendments to the Retirements Benefits (Occupation Retirement Benefit Schemes) Regulations 2000, “you will get all your money plus interest accrued in retirement.”

Does this sound familiar? That employee who contribute 1.5 per cent of their basic salary towards the National Housing and Development Fund but do not get, or qualify to get one of the half a million cheap houses that President Uhuru Kenyatta wants built by 2020, will get their funds back?

This will be plus interest accrued in 10 years or after retirement, whichever comes first. President Kenyatta’s Government has now delivered a double blow, soaking up part of employees’ liquidity in a bid to fulfill his Big Four Agenda.

Besides building cheap houses by 2022, the Uhuru wants every Kenyan to have access to adequate nutritious food by the time he finishes his term, create jobs in the manufacturing sector and widen the reach of critical healthcare services to every Kenyan. 

Running out of legroom to tax or borrow more, a cash-strapped government has turned to the private sector, households and businesses to finance the ambitious Big Four agenda.

In June last year, National Treasury Cabinet Secretary Henry Rotich unveiled the Public-Private Partnership (PPP) Disclosure Portal, from where members of the public, media, civil society and other interested parties would learn about PPP deals signed in the country.

“In order to realise this agenda (Big Four), the Government is cognizant of the fact that it will need to deploy both physical infrastructure and technical expertise across all 47 counties. This will be a capital-intensive venture that we cannot hope to finance through the national budget alone,” said Mr Rotich.

Treasury Principal Secretary Kamau Thugge was more forthright, noting that with the legroom to chalk up more debt shrinking, PPP was the best way for the Government to continue with mega infrastructure projects without bursting the debt limit.

“PPP is our way of having our cake and eating it,” said Thugge, noting that with the plan, the State will continue with the construction of mega infrastructure projects that have mostly been debt-financed.

This exhortation was repeated a fortnight ago when the Director-General, Public Investments, and Portfolio Management Directorate Stanley Kamau urged local pension funds to invest in infrastructure to support the attainment of the Big Four agenda. 

“There is a pipeline of opportunities to invest under the PPP programmes and pension funds can benefit from the stable and attractive long-term returns that can be obtained by investing in infrastructure PPP projects,” said Kamau.

To be able to invest in mega long-term projects, 14 pension funds with a total asset base of over Sh200 billion formed a consortium dubbed Kenya Pension Fund Investment Consortium (KEPFIC).

“KEPFIC has received proposals for a wide range of infrastructure investments, including energy, roads, water, and affordable housing,” said Zamara Group Chief Executive Sundeep Raichura, also a member of the KEPFIC Steering Committee.

KEPFIC is keen on affordable housing programme (AHP). In October last year, it invited the World Bank - the brains behind the AHP - to explain to them how they could plug into the project. 

The verdict was simple: for such mega infrastructural projects as AHP, the pension funds would need to be as liquid as possible.

In what is aimed at leaving pension managers with sufficient funds that they can pump into AHP and other long-term infrastructural projects, National Treasury Cabinet Secretary Henry Rotich last month decided to restrain workers from accessing their employers’ pension contribution before they attain retirement age (55-60 years) depending on the company policy.

They can, however, access all their contributions before retirement. The idea, says the Government, is to reduce old-age poverty by availing sufficient income for retirees during their sunset years. But this is only half of the story.

The other one is that pension funds can also now invest in large infrastructure projects without having to worry about the intermittent raid of the kitty by members leaving the service of an employer.

It is true that Kenya, at 10 per cent of the gross domestic product (GDP) as of 2017, had one of the lowest savings rates globally. The country’s savings rate, according to data from the World Bank, is below the sub-Saharan average of 18 per cent.

Ethiopia and Tanzania, the two low-income countries in the region, are miles ahead of Kenya with a savings rate of 31 per cent each. Even Uganda, with a savings rate of 18 per cent, is doing better than East Africa’s richest economy.

As saving for retirement, pension is one of the most popular vehicles for mobilising resources. However, the pension system is burdened by pension adequacy, with members tapping into their savings early on before retirement.

The Retirement Benefits Authority (RBA) cited a study that showed that pension replacement rate in Kenya was 34 per cent against an ideal target of 75 per cent of pension scheme income as a proportion of pre-retirement income. 

This means that for a Kenyan earning Sh100,000 a month, most would earn just 34 per cent or Sh34,000 of this income in retirement against an ideal 75 per cent or Sh75,000.

As of December last year, retirement benefits under management had Sh1.16 trillion in assets, according to an industry report by RBA.

Unfortunately, most of the proceeds from these assets were quickly snapped up by individuals leaving employment who opted “not to preserve their benefits but took out the maximum available under the legislation in cash,” RBA Chief Executive Nzomo Mutuku said.