Postal Corporation of Kenya employees in Mombasa during a strike to demand for better pay. Postal Corporation of Kenya (PCK) is planning to wind up its junior staff provident fund within one month and move their retirement benefits to a pension scheme in reforms aimed at bolstering old age social security. File
Postal Corporation of Kenya (PCK) is planning to wind up its junior staff provident fund within one month and move their retirement benefits to a pension scheme in reforms aimed at bolstering old age social security.
Under the new system, junior staff will contribute towards their retirement savings with PCK, their employer, topping up with an equal amount.
This is a step in embracing a defined contribution approach in State owned firms as decreed by Treasury in 2011.
Upon retirement, the junior staff will now qualify for a monthly pension to enable them maintain decent living standards, rather than earning a lump sum payment under the provident fund, which often leads to high old age poverty.
Already, a liquidator has been picked to settle any outstanding debts owed by the provident fund before the balance of the assets are transferred to the pension scheme, after PCK reviewed the terms of employment for its junior workers.
“The corporation is winding up the provident fund after the concluding internal reforms which have ensured all workers are treated equally,” said a trustee at the PCK staff pension scheme.
Contributions
Previously, junior workers were only allowed to be members of the provident fund, where their retirement benefits are determined by the rank they hold in what is known as a defined benefit scheme.
Only senior workers, beginning from middle level management were allowed to join the pension scheme where the employer matches their monthly contributions in the retirement savings pool.
Benson Okwaro, the secretary general of the Communications Workers’ Union, estimates that at least 4,200 junior workers will benefit from the closure of the provident fund, whose benefit payout is usually too little to afford pensioners a decent life in retirement.
“This is what the union has been demanding because having them in the pension scheme would offer a better retirement package,” said Mr Okwaro.
The provident fund has been closed since January 2010 when the pension scheme was set up meaning that its membership, including of workers retrenched in 2001 when PCK was restructuring its operations, has remained frozen.
Those junior workers who were retrenched and do not wish to join the pension scheme have been given a month to claim their retirement benefits from the provident fund.
Mr Okwaro said that PCK had ceded property worth about Sh1.7 billion to the provident fund which would have been insufficient to meet the members’ retirement needs.
Fred Nyayieka, the executive director at the Pension Advisory Centre said that the dissolution of the provident fund and the subsequent transfer of members’ contributions into a pension scheme are necessary steps to ensure financial freedom for workers.
“By winding up the provident fund, PCK is now moving with the trend in the pensions industry,” said Mr Nyayieka, adding “It is very prudent of the corporation to convert into a defined contribution scheme.”
Charles Machira, the head of supervision at the Retirement Benefit Authority, said that the regulator had approved of the planned winding up of the provident fund because a pension scheme would allow for members to earn a steady income in retirement.
RBA has been pushing for employers, including the State, to set up a defined contributions retirement benefits schemes for their workers to boost their old age savings.
Already, a Bill has been prepared that will transform the National Social Security Fund into a pension scheme covering workers in both the formal and informal sectors of the economy.
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