Rising Civil Service retirements burst pension budget

The rising number of civil servants retiring after the end of a five-year freeze on retirement has burst the pension budget by Sh8.8 billion, underlining growing taxpayers burden of keeping former public servants comfortable.

The mini-budget tabled in Parliament shows that spending on their pension rose 20.5 per cent above the Sh42.9 billion the Treasury had set aside to cater for the retirees.

The freeze on retirement was imposed in 2009 when the age for exiting the civil service was increased from 55 to 60 years to slow down the rising pension bill.

Now, more than 20,000 civil servants started retiring annually from last year, forcing the Treasury to set aside billions of shillings as pension costs for the of exiting workers who do not contribute for their pensions.
The Treasury reckons effects of the five-year extension are now being felt.

The additional Sh8.8 billion is attributed to gratuity payments made to civil servants and the military. Gratuity is a lump-sum made to employees who have completed a specific number of years in an organisation while pension is the monthly payment made to retiring employees.

Gratuity payments to the military surpassed budget by Sh3 billion from the set Sh4.5 billion while that of civil servants grew by Sh5.7 billion.

Estimates from the Treasury show that the annual pension bill will rise to Sh66.0 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.

READ: Pension headache for State as 32pc of workers retire

The Public Service Commission (PSC) said that nearly a third of civil servants are above the age of 50 years.

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

At Sh51.6 billion, the pension bill for the year to June is more than the Sh44.5 billion that Kenya spend on health.

Kenya’s public workers have since independence enjoyed retirement benefits that are fully paid for by the taxpayers through the Consolidated Fund.

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