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Economy

New pension plan for civil servants suspended again

Edward Odundo appointed to chair the scheme’s board of trustees. FILE PHOTO | NMG
Edward Odundo appointed to chair the scheme’s board of trustees. FILE PHOTO | NMG 

The roll-out of the civil servants contributory pension scheme that was to begin last month has been suspended once again due to an incomplete board of trustees, sparing the workers a deduction.

The Treasury planned to start deducting the money in July when civil servants were to start enjoying a 5.2 - 30.7 per cent pay rise and therefore feel less impact.

Former Retirements Benefit Authority chief executive Edward Odundo, who has been appointed to chair the scheme’s board of trustees, blamed the delay on lack of quorum in the board that was meant to meet earlier in the month to discuss the roll out plan.

“The unions are yet to fill their four positions in the nine-member board. Therefore there is no quorum,” Mr Odundo said.

“The board must be complete for all of us to agree on a new start date,” added Mr Odundo.

The scheme had sparked a standoff between the Treasury and Kenya National Union of Teachers, who insisted they had not been consulted.

Under the new scheme, civil servants will contribute 7.5 per cent of their monthly pay while their employer puts in another 15 per cent.

The funds will then be invested for the benefit of the workers. Presently, civil servants are entitled to free pension, which in recent years has become a burden to taxpayers.

The public pension bill is set to rise 29.1 per cent to Sh71.8 billion in the current financial year, marking the start of a series of sharp increments that will see taxpayers fork out Sh104.4 billion in 2019/20 to keep retired civil servants comfortable in old age.

Part of the pension time bomb has been attributed to the government’s failure to push through necessary reforms, including kick-starting the long awaited contributory pension scheme.

The bill has continued to grow despite the decision eight years ago to increase the retirement age from 55 to 60 years.

The move was meant to slow down the number of retirees entering the pension pool and offer the government some headroom to set up a contributory pension scheme.

Under the new structure, civil servants aged 45 years and below will automatically begin contributing and their past benefits transferred to the scheme, while those aged above 45 will be given a choice to join or remain in the current scheme.

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