Mbadi tells Senate Counties owe Pension Schemes Sh 115.7 billion

Treasury Cabinet Secretary John Mbadi. [File,Standard]

National Treasury Cabinet Secretary John Mbadi has said that County Governments owe pension schemes a total of Sh115.7 Billion comprising principal interest, penalties and the actuarial deficit of this amount.

Mbadi told the Senate County Public Investments and Special Funds Committee that of this amount, Sh103.2 billion (91 percent) was owed by County Executives, Sh9.3 billion (6 percent) by water service providers and Sh3.2 billion (3 percent) by County Assemblies.

He said that the Multi-Agency  Taskforce on Non-Remittance of deductions to pension schemes by county governments identified several outstanding administrative, financial, legal, regulatory, systemic and structural challenges that continue to hinder implementation of its recommendations.

“The Taskforce developed and adopted a proposed  Debt Settlement Agreement which was forwarded by the National Treasury to the Solicitor General for legal clearance. This agreement is intended to provide a framework for the settlement of the outstanding pension liabilities and will take effect upon the Senate’s adoption of the recommendations,” said Mbadi.

The National Treasury Cabinet Secretary said that Executive Committee Members and Chief Officers for  Finance from all the 47 Counties were invited for a consultative meeting in January 2025 to deliberate on the outstanding pension liabilities and to propose strategies for settlement.

Mbadi told the Senate Committee chaired by Taita Taveta Senator Johnees Mwaruma that the county officials requested additional time to reconcile data relating to unremitted pension contributions with the respective pension schemes and that as June 18, 2026 only 10 Counties had confirmed pension liabilities.

The Counties that confirmed pension liabilities include: Bungoma,Baringo,Turkana, Wajir, Murang’a, Nyeri, Meru, Kiambu, Isiolo and Tharaka Nithi while nine County Assemblies including: Bungoma, Kericho,Kisumu,West Pokot,Baringo,Lamu,Migori,Nandi and Kilifi had confirmed their pension debt obligations.

“Analysis of data on unremitted pension contributions submitted by the Local Authorities Pension Trust Fund (LAPTRUST), Local Authorities Provident Fund (LAPFUND), National Social Security Fund (NSSF), County Pension Fund (CPF) and Kenya National Library Service revealed that a substantial portion of the pension debt is owed by Nairobi City County and Mombasa County Governments,” said Mbadi.

He said that Nairobi and Mombasa Governors were invited for a meeting in April 2025 in which the Taskforce was to discuss its findings and recommendations and to explore alternative mechanisms for settlement of outstanding debts, taking into account the magnitude and nature of the debt with only Nairobi Governor showing up while the Mombasa Governor did not show up.

Mbadi told Senators that the Nairobi Governor attended the meeting at the National Treasury building during which the Taskforce presented its findings and proposed debt settlement options with the Governor undertaking to consult with the county technical team on the matter and provide feedback to the taskforce however the response has not been received to date.

The Senate Committee had sought to ascertain whether existing legislation expressly provides for use of Treasury Bill rates in determining applicable interest on pension arrears or whether statutory amendments on regulatory provisions are required.

“There is a need for the Chairperson to engage the Managing Trustee of NSSF to formally clarify institutional positions, timelines and expectations regarding arrears, application of Treasury Bill rates and property swap proposals,” said Mwaruma.

The Senate Committee raised concerns about the complex nature of property swap arrangements (where recommended) due to valuation challenges and delays rendering the option inefficient and potentially costly compared to alternative settlement mechanisms.

The Senate raised concerns over the need for the Taskforce to document the process of issuing and subscribing to bonds as a feasible settlement option to develop a framework for county governments to utilize bond financing.

Mwaruma said that they had noted the need for a comprehensive time bound strategy to clear pension arrears and prevent their recurrence with this including efficiency statutory deductions at source during salary payments, holding accounting officers personally liable for non-compliance under sections 196, 197 and 203 of the Public Finance Management Act.

“There is a need for establishing a legally anchored interface between IFMIS and HRIS to enable automated verification of pension remittances and strengthen compliance, there is a need for a clear implementation and monitoring mechanism for signed debt settlement plans by county governments,” said Mwaruma.

The Senators recommended that bond solutions be extended to counties with pension arrears exceeding Sh1 billion and not limited to Nairobi City County and Mombasa County Government with also a need to revise paragraph 164 of the report to include clear timelines and milestones to guarantee accountability in implementation.

The Senate Committee said there is a need for a legislation to classify failure to remit pension deductions as a criminal offence thereby enabling the prosecution of Governors and accounting officers by relevant enforcement agencies.

“There is a need to identify statutory provisions requiring amendments in order to streamline debt settlement, enhance enforcement mechanisms and strengthen pension protection and measures and recommendations that section 60 of NSSF Act be amended to adopt the Treasury Bill rate as prescribed interest rate,” said Mwaruma.