Civil servants to enjoy life cover in new pension plan
Civil servants will enjoy a life and disability cover as part of the new pension scheme in what is likely to emerge as the single biggest market. File
Civil servants will enjoy a life and disability cover as part of the new contributory pension scheme in what is likely to emerge as the single biggest market for Kenya’s stagnant insurance industry.
This is the first time that civil servants will enjoy a life cover as their counterparts in the private sector in a move that is set to make the public sector more competitive in the labour market and reduce resistance to the new pension scheme.
The Government is keen to share the pension burden with its workers by introducing a contributory scheme to ease the growing retirement expenditure. On Friday it published a Bill to guide introduction of the scheme in January. Workers’ representative who had earlier rejected the pension plan since it amounted to a cut on the salaries are warming up to the reviewed scheme citing the life and disability insurance package in it.
“It is a good scheme for civil servants who will benefit from the life and disability covers,” said Mr Tom Odege, the secretary-general of the Union of Kenya Civil Servants.
“Previously, when a civil servant was disabled he claimed compensation based on his level of injury. This system has not been satisfactory since it takes long for the claims to be processed,” he said.
“The Government’s allocation of funds to such compensations has also been inadequate, leading a huge backlog of claims.”
The Public Service Superannuation Scheme Bill, 2011 to be presented to Parliament for debate says the Government will take out and maintain a life insurance policy that has disability benefits for members of the scheme. Should a member be disabled during employment, he or she shall be entitled to a minimum pay five times their annual pensionable wages.
The life insurance policy will be an additional benefit to the Government’s contribution to the scheme at a rate of 15 per cent of each member’s monthly pensionable pay. Civil servants will contribute 7.5 per cent on their monthly pensionable pay. Public servants who have been serving on temporary terms and were contributing to the National Social Security Fund will be admitted to the new scheme once it becomes operational.
The contributions will be graduated, with members contributing at the rate of two per cent in the first year, five per cent in the second year, and five per cent in the third and subsequent years.
The new scheme is expected to benefit local life insurance firms whose premiums could double once it is rolled out, offering the sector a new growth opportunity after stagnating for decades.
Consumer apathy
“It is big boon for insurance business,” said Nelson Kuria, the chief executive of CIC Insurance.
“The finer details of the scheme in terms of benefits and premiums expected are yet to come but it is set to be a major source of premiums,” he said.
Insurance penetration in Kenya has stagnated over the years at less than three per cent due to consumer apathy, ignorance, and lack of structured products for the mass market.
Kenya has more than 35 insurance companies that have focused on corporate and middle class clients, which have already matured, leaving little room for growth.
Insurance firms make most of their profits from investments because high claims eat into their profits from the underwriting business, especially general insurance.
