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Ideas & Debate

EDITORIAL: It’s time to defuse the pension time bomb

The National treasury building in Nairobi. FILE
The National treasury building in Nairobi. FILE PHOTO | NMG 

For years, the government has been aware of the ticking time bomb that is the public sector pensions cost, which is expected to hit Sh153 billion in the next three years.

It is therefore not surprising to see the Treasury once again raising the red flag over the cost of retirees, which is a material risk to the budget.

It is alarming that pension costs have now climbed to become the fifth largest budget item, rivalling traditional heavyweights such as basic education and internal security.

The 50,000 public servants who retired between March and October, and the 10,300 more going home by the end of the fiscal year are representative of a trend that will only go up in coming years due to an ageing workforce.

However, the Treasury’s lamentations about the cost of pensions are beginning to sound like a broken record. The problem has been known for years, and a solution has already been floated.

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A few years ago, the government announced plan to shift all civil servants from the defined benefit pension scheme that they have always enjoyed to a contributory scheme, thus removing the burden of funding their pension from the taxpayer.

It is unfortunate that there has been little effort on the part of the same Treasury that is now sounding the alarm to effect this change of system.

Pensioners are some of the most vulnerable members of society, facing for instance high medical bills at a time when their ability to go out and engage in economic activities is reduced.

Therefore, in our view, the delay in instituting pension reforms is not only unfair to the taxpayer, who faces a higher pension bill, but also to future retires who may yet find that the state cannot afford their pension when they leave work.

Simply put, the government is not doing workers any favours by failing to shift their pension scheme to a more sustainable model today.

We are therefore calling strongly on the Treasury to expedite the shift to the contributory plan for public workers, because failure to do so is going to prove very damaging to the economy. While at it, the government will also do well to ensure that public workers’ savings are managed prudently, so that they do not end up empty handed at the end of their working lives.

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