When the government’s own July timeline for rolling out a contributory pension scheme for civil servants came last year, the Treasury simply deflected attention with a three-month postponement.
What has followed since is a series of postponement every time the official deadline is nigh. Last week, Treasury secretary Henry Rotich was at it once again.
He told Parliament that the scheme would not begin on July 1 when the 2018/19 financial year starts but will kick in three months later, in October.
That official inertia is by no means the result of guesswork, but masks an unresolved conflict with labour unions. While the government’s idea is to deduct 7.5 per cent of each worker’s salary and match it up with its contribution, the unions, especially the ones representing teachers, have been adamant.
They want an arrangement where the State absorbs the whole cost instead of cutting their take-home pay. We wish to state here again that the non-contributory scheme is unsustainable.
It has exposed the economy to a ticking pension time bomb, whose time is running out. If things don’t change, the pension burden, which had risen by 29 per cent this financial year to Sh71.8 billion is projected to keep rising, hitting Sh104.4 billion by 2019/20. That huge growth is enough to upset the national budget.
It is our view that the government must begin to build a viable nest egg for its aging workers as a matter of urgency. That is because the earlier the contributory scheme starts, the better for civil servants.
Otherwise, the other long standing stalemate is unhelpful. The government must clearly explain the contributory scheme to union members. Any money submitted to a registered pension scheme immediately becomes a saving that generates return.
As such, it cannot be regarded as an ordinary deduction. Furthermore, the money remitted to such schemes is shielded from tax up to a specific level.
Failure to roll out the contributory pension scheme simply means the more than 20,000 senior citizens who retire from public service every year will always be exposed.