The government failed to remit Sh219.9 million in its share of contributions to the Public Service Superannuation Fund (PSSF) in the financial year ending June 2023, revealing emerging risks for the recently established pension scheme.
PSSF, which commenced operations in January of 2021, is a defined contribution scheme under which civil servants pay towards their retirement benefits which are topped up by exchequer contributions.
Civil servants contribute 7.5 percent of their gross salaries from five and two percent previously while the government matches the contribution at 15 percent of civil servants' gross salaries--a shift from the past when the State operated a non-contributory pension scheme financed fully by the exchequer.
Auditor-General Nancy Gathungu said the State has failed to remit its part of the contribution of employee remissions to the PSSF.
“The statement of financial position as disclosed reflects a balance of Sh6.8 billion in respect to receivables from exchange transactions. The balance includes an amount of Sh219,999,201 with respect to the employer’s contributions that remained outstanding as of July 31, 2023 contrary to the PSSF Act which states that, not later than ten working days after the end of the month in which the contributions are due, the government shall remit an amount comprising the member’s and the government’s contribution to the custodian,” the Auditor General noted.
The disclosure of the unremitted contributions points to the raging crisis of deducted but unpaid deductions in the pensions industry.
In February, the Treasury disclosed Sh42.06 billion in unremitted employer contributions by State-owned entities which raises the odds of thousands of workers retiring empty-handed.
The exchequer listed the unremitted employer contributions as the second biggest pending bills for the parastatals.
The PSSF is managed by asset management firm GenAfrica while CPF is the scheme’s administrator and covers civil servants, including teachers employed by the Teachers Service Commission and disciplined forces.
Previously, the government operated a non-contributory pension scheme financed fully by the exchequer.
The model however proved unsustainable as the full burden of the pension bill was placed on taxpayers.
The creation of the PSSS was part of reforms in the public service pensions sector which gave rise to the 2012 Public Service Superannuation Scheme Act.
All public defined benefit schemes were converted to defined contributory schemes aligning the schemes to best industry practices. Civil servants below the age of 45 along with new hires in the sector were obligated to make contributions to the fund while workers aged above 45 were given the option to join the contributory scheme.
PSSF’s scheme membership grew from 368,795 in June 2022 to 416,449 as of June last year with the increase majorly coming from fresh staff recruitment in the police and teachers’ services.
The fund netted Sh5.5 billion in investment returns for the period and had Sh37 billion in total contributions raising the total value of the scheme to Sh84.7 billion.
By February this year, PSSF fund value hit Sh105 billion putting the scheme only second to the National Social Security Fund (NSSF).
