Pension headache for State as 32pc of workers retire

Kenya is facing a pension time bomb with nearly a third of the civil service set to retire in the next decade, wreaking havoc on public finances.

The Public Service Commission (PSC) says 32 per cent of civil servants are above the age of 50 years, meaning that about 60,000 civil servants will retire before 2025.

The Treasury will need to set aside billions of shillings as pension costs for the thousands of exiting workers who do not contribute for their pensions.

Estimates from the Treasury show that the annual pension bill will hit Sh43.4 billion in the current financial year ending June and will rise to Sh96.7 billion in the year ended June 2018, making it one the largest budget items.

The bill has risen from Sh15 billion in 2002.

Economists warn that the pension crisis will grow more acute because the government has delayed plans to have civil servants contribute monthly to a fund that will pay for their retirement.

This will derail government efforts to shift public spending to farming and building roads, ports, railways and power plants among other productive sectors of the economy to jumpstart the slowing economy.

“Thirty two per of the public service employees were 50 years and above, meaning the service was ageing,” the PSC says in its 2015 Annual Report.

About 22 per cent of public servants are below 35 years.

Civil servants are to start contributing for their upkeep in retirement in what is expected reduce taxpayers’ exposure to the burden of financing public servants pensions that will cross the Sh100 billion mark in five years.

READ: Civil servants to start paying for retirement dues

The contributory pension scheme was initially mooted in 2009 as part of a two-pronged strategy to stop a looming wage bill crisis as pension payments continued to balloon.

Its roll-out has been suspended more than thrice. Part of this strategy was the increase of retirement age from 55 years to 60 to slow down the rising pension bill.

Civil servants will 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.

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

This means that the workers’ benefits will be paid from the fund and determined by the performance of the scheme.

Presently, civil servants’ monthly pension is based on their last salary and years spent working for the government.

Civil servants aged above 45 were given the freedom to either join the contributory scheme or remain in the current free model where they will not take a pay cut.

The PSC report indicates that 48 per cent of public servants are above 45 years, signalling a larger pension bill.