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Economy

Civil servants 7.5pc pay cut in July for pension

Director of Pensions Shem Nyakutu. PHOTO | SULEIMAN MBATIAH | NMG
Director of Pensions Shem Nyakutu. PHOTO | SULEIMAN MBATIAH | NMG  

Civil servants will from this month be deducted 7.5 per cent of their salaries for their pension contribution, lowering the benefits of the pay increase that took effect on July 1.

Director of Pensions Shem Nyakutu told the Business Daily that the new scheme would start at the end of July, coinciding with the salaries review to avoid reducing the civil servants pay.

Public servants in Kenya do not contribute to their retirement upkeep, a move that increased taxpayer’s pension burden to Sh96 billion this year from 15 billion in 2002.

“We have timed it with salary increment so there is no need for gradual deductions. But more importantly, we are solving a pending pension crisis because the budget was growing too fast and we could not wait any longer,” Mr Nyakutu said.

Civil servants are in line for a basic pay increase of between 16 and 30 per cent in a review that will cost taxpayers Sh20 billion this year.

The contributory scheme has, since its inception in 2009, been dogged by numerous challenges that have seen its roll-out suspended more than thrice.

Civil servants were initially to contribute two per cent of their monthly salary to the scheme in the first year, five per cent in the second and 7.5 per cent from the third year.

But the staggering has now been stopped with workers expected to contribute the 7.5 per cent of their pay in their first year.

The government will match the contributions with an amount equivalent to 15 per cent of every worker’s monthly pay.

This is in addition to the Sh17.9 billion the State allocated as seed capital for the new fund for investments.

Former Retirement Benefits Authority CEO Edward Odundo has been appointed chair the board of trustees of the new scheme.

“My board is meeting tomorrow (today) to discuss how to put proper structure for the new scheme. I am foreseeing a modern scheme where members can track their contributions through their mobile phones in real time and we need proper investments for their retirement security,” he said.

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