Economy

KNH leads parastatals in Sh20bn pension debt

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Kenyatta National Hospital in this photo taken on December 10, 2019. PHOTO | JEFF ANGOTE | NMG

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Summary

  • The largest referral hospital in the East African region had historical outstanding bills amounting to Sh8.96 billion in unremitted pension dues by end of June 2021, according to the latest disclosures.
  • KNH was followed by cash-strapped public universities and university colleges whose social benefits arrears — largely pension and medical cover for staff — were estimated at Sh6.52 billion.

Kenyatta National Hospital (KNH) and public universities top the list of State corporations that have accumulated Sh20 billion arrears in contributions to pension and medical cover benefits, pointing to a deepening liquidity crisis.

The largest referral hospital in the East African region had historical outstanding bills amounting to Sh8.96 billion in unremitted pension dues by end of June 2021, according to the latest disclosures.

KNH was followed by cash-strapped public universities and university colleges whose social benefits arrears — largely pension and medical cover for staff — were estimated at Sh6.52 billion.

The defaults are worsening the pension crisis and will expose hundreds of workers to an uncertain retirement coming at a time the government resource envelope to shoulder the additional pension burden is wearing.

The disclosure comes at a time Treasury secretary Ukur Yatani has raised the red flag over mounting defaults in honouring staff pension obligations among State-owned entities.

“Consequently, these State corporations have accumulated huge arrears of staff pension contributions contrary to existing laws and government policies," Yatani says in the latest circular to parastatal chiefs.

"The boards of directors are reminded of their responsibility to protect the interest of the pensioners and provide oversight for effective operations of such schemes."

The Treasury has, as a result, ordered parastatals to include pension dues in their budgets, and submit monthly reports on the status of staff pension contributions.

Employers are, under the Retirement Benefits Act of 2020, penalised five percent of the unremitted contributions or Sh20,000, whichever is higher, for late payment within seven days after getting notice.

The law also allows the employers to submit a remedial plan upon payment of the penalty, indicating the timeframe within which the accumulated contributions and interest will be offset.

The data, based on budget reports from ministries and State agencies, shows that KNH and universities accounted for 77.38 percent of the Sh20 billion social benefits arrears by State-owned firms for the year ended June 2021.

This is a marginal drop from Sh22.17 billion outstanding bills in the year through June 2020 owed to State-run National Social Security Fund (NSSF) and National Hospital Insurance Fund (NHIF) as well as staff pension schemes.

KNH says the Sh191 million it owed NSSF by last June emanates from contribution arrears between April 2001 and November 2009 when it unsuccessfully sought to be exempted from the statutory pension deductions because it had a "better pension scheme".

The hospital blames the Ministry of Labour for delaying to approve or reject its request for exemption for 10 years until it was ordered by the court to give direction after the NSSF moved to court in 2008.

"There was an assumption on the part of the Hospital that the exemption would be granted," KNH explains in its budget report.

"The court directed the Minister to give direction and in 2011, the Ministry [at the time headed by John Munyes] gave direction where it declined the request for exemption on the basis that NSSF was a universal social security pillar and thus was mandatory."

The remainder Sh8.77 billion of the KNH’s pension arrears relates to the closed-to-new-members Defined Benefit (DB) Pension Scheme.

"From FY 2015/16 to FY 2019/20 the Hospital has been paying Sh100 million annually towards the scheme deficit which is not sufficient to service it," the KNH explains. "The hospital has continued to engage the Ministry of Health for more funding."

Kenya Medical Training College also had pension arrears amounting to Sh2.27 billion in the year ended June 2021.

This comprises Sh730 million owed to NSSF in penalties for failure to remit Sh60 million in contributions between January 2002 and March 2011, and Sh1.54 billion deficit in the staff pension scheme.

KMTC says the defaults in contributions to the NSSF happened at a time RBA had granted it an exemption to stop the statutory deductions after it formed its own defined benefits staff retirement scheme.

But this was overturned by then Labour minister John Munyes in 2009 by directing employers to remit NSSF contributions as per the law, except with the minister’s exemption.

KMTC later converted the scheme into a defined contributory scheme.

"The RBA requires a Remedial Action Plan (RAP) for settlement (of Sh1.54 billion in staff pension scheme). In view of recent retirements of staff, the scheme is soon finding it difficult to meet its obligations of paying Pensions to retirees," KMTC says.

Other notable defaulters in contributory social benefits include the National Museums of Kenya (Sh169.76 million), parastatals under Water, Sanitation and Irrigation department (Sh1.49 billion) as well as those under the Broadcasting department (Sh542 million).

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