The Treasury building in Nairobi. The government has postponed commencement of the civil servants contributory retirement scheme to January next year. FILE
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Treasury secretary Henry Rotich said on Monday that the scheme, which was earmarked to start on July 1, would take an extra six months to be set up.
Civil servants will be expected to contribute two per cent of their salary to the new pension scheme in the first year, rising to five per cent in the second year and 7.5 per cent from the third year onwards.
The contributory scheme will ease the government’s pension burden, which is deemed to be growing at an unsustainable rate.
The government has postponed commencement of the civil servants contributory retirement scheme to January next year, as the Treasury puts in place plans to manage the funds.
Treasury secretary Henry Rotich told the Business Daily on Monday that the scheme, which was earmarked to start on July 1, would take an extra six months to be set up.
The move earns civil servants a short-term reprieve from an expected dent on their take-home pay, but delays the Treasury’s plan to put in place a sustainable retirement plan for State workers.
“We had envisaged that we would be ready to commence on July 1, but some administrative aspects of the scheme are still in the works,” said Mr Rotich, shortly after signing a Sh13.17 billion ($155 million) credit agreement with the World Bank for financing water supply and climate change management projects in Nairobi on Monday.
“We think by December we will have completed setting up of the administrative infrastructure and management aspects, and that is what the pensions department is working on.”
The new pension scheme, called a defined contribution scheme, is set to replace the current defined benefit scheme, which is fully funded by the Treasury.
Civil servants will be expected to contribute two per cent of their salary to the new pension scheme in the first year, rising to five per cent in the second year and 7.5 per cent from the third year onwards. The contributory scheme will ease the government’s pension burden, which is deemed to be growing at an unsustainable rate.
Civil servants have been bracing for the conversion of the scheme for the past five years, but the government attempts to effect the changes have been hampered by a lack of requisite laws and administrative structures to guide the process.
The enactment of the Public Service Superannuation Act 2012, however, gave the government necessary legal backing, making it possible to push through the changes that will help the Treasury cut the costs of pensions which have risen to Sh38 billion for the 2013/14 financial year.
The Pensions Department said the administrative aspects being finalised will ensure that the scheme is ready to roll out once Mr Rotich gazettes it.
“The commencement of the Act is by notice, we need to make sure that when the Cabinet Secretary does so everything is in place,” said Michael Obonyo, the spokesman for the Treasury’s Pension Department. “There was Sh6.9 billion provided for in the budget for this year to cover the governments part of the scheme.”
As the employer, the government is set to match every worker’s monthly contribution with another 15 per cent of his or her salary, and also take out and maintain a life insurance policy worth a minimum of five times the member’s annual pensionable emoluments. The policy also comes with disability benefits for each member of the scheme.
About 20,000 civil servants retire each year.
The credit agreement signed on Monday marked the first phase of a planned Sh65.25 billion ($750 million) funding by the World Bank to help bridge the country’s deficit in water infrastructure, which is estimated at between Sh435billion and Sh609 billion ($5-7 billion).
“The first beneficiaries of this financing will include an irrigation scheme on the Lower Nzoia River in Siaya and Busia counties in Western Kenya,” said World Bank country director for Kenya Diarietou Gaye.
“This is a flagship project of the Kenya Agricultural Sector Development Strategy. Regular and reliable water supply will facilitate increased output of high value produce from this region.”
The new credit has increased the bank’s support to Kenya’s water sector to Sh52.7 billion ($605 million), Ms Diarietou added.
