Civil servants escape pay cut as new pension plan is shelved

The Bill will need to be presented in Parliament for the third reading and, if approved, the President will then assent to it before it can come into force. There are however no timelines that have to be met.

In the proposed scheme, the Government as the employer will contribute an amount equal to 7.5 per cent of each worker’s basic salary into the pool of funds that is envisaged to accommodate all civil servants below the age of 45. 

Mr Ndambuki said that his ministry would be proposing that both the Treasury and workers grow their contributions gradually, say over a three-year period, to ensure that both parties have time to adjust their earnings and savings.

Dues till death

The Public Service ministry estimates that retirees live for an average of 20 years after leaving service, and based on repealed retirement age of 55 years draw their pension dues till death at 75 years.

Qualifying dependants, widows and children aged below 21 pursuing full time education, are also allowed to draw pension for another five years upon the death of the retired civil servant.

Based on the estimates, the existing scheme for government workers will pay its last beneficiary in 2040 should the new scheme come into effect in 2012.

The growth in the government’s pension bill has accelerated over the past ten years mainly due to a rising number of retiring workers over time, and bigger payouts to the individual retirees.

That is in addition to a government decision to pay Sh16.7 billion in outstanding retirement arrears owed to teachers over a five year period beginning 2011, exerting more pressure on the swelling pension bill.

The government spent Sh31.8 billion on civil servants’ pension in 2010/11 and allocated Sh34.4 billion for the current year.

A ballooning pension bill continues to diminish the government’s ability to invest in development projects as more resources are directed to social welfare to cater for an ever-rising number of retirees.

Pension managers have over time raised the red flag on the feasibility of the government’s pay-as-you-go pension scheme for civil servants, saying a funded scheme where civil servants contribute for their sunset years during their working life would be more sustainable.

“The government will be certainly better off work with a contributory pension scheme because it transfers the responsibility of retirement savings to workers,” said Sundeep Raichura, the managing director of Alexander Forbes Consulting Actuaries.

Treasury handles an average of 200 new claims per month arising from workers opting for early retirement, at an average cost of Sh500,000 in lump-sum payments for death gratuities on top of the monthly pension disbursement roll.

There are more 200,000 retirees drawing monthly pension from the government, including former employees of the disciplined forces, teachers, parliament, semi-autonomous state firms and even former employees of the colonial government.