The government spending on pensions for public servants is set to rise by 6.2 percent in the new financial year, with the bill just Sh633.8 million shy of breaching the Sh200 billion mark for the first time.
The Treasury has estimated pension expenditure at Sh199.36 billion in the financial year 2024/25, marking a notable increase from a projected Sh187.56 billion in the ongoing financial year that ends next month.
The rise has been largely driven by the estimated Sh6.5 billion that will be paid as benefits to public servants who have been contributing monthly pensions into the recently introduced Public Service Superannuation Scheme (PSSS), set to retire during the year.
The government introduced the PSSS scheme in 2021 for civil servants aged below 45 to reduce its pension burden after years of delays in putting the scheme in place.
The State also allowed civil servants aged above 45 to voluntarily join the scheme, in which the State contributes 15 percent of their gross pay.
Contributions to the scheme were staggered, starting from two percent of the gross pay of civil servants in 2021 to five percent in 2022 and eventually 7.5 percent in 2023.
In the new fiscal year, the Treasury projects ordinary pensions to rise from Sh85.8 billion to Sh88.1 billion, while gratuities will also increase from Sh68.5 billion to Sh70.2 billion.
The State’s contributions will also rise from Sh33 billion to Sh34.4 billion, while an additional Sh6.6 billion will be spent on other pension items, including the Sh6.5 billion benefits for retirees under the PSSS.
This comes even as the government eyes a revamp of the public service pension administration through digitization and re-engineering of the pension management system, expected to be completed by December 2024.
“Digitization will streamline processes, improve accuracy, and facilitate timely pension payments,” said Treasury Cabinet Secretary Prof Njuguna Ndung’u in the 2024 Budget Policy Statement (BPS).
The government’s spending on pensions, salaries and benefits has been rising rapidly in recent years, and coupled with worsening debt repayment pressures, tightly squeezed the budget.
