Economy

Civil servants mass departure pushes pension to Sh150bn

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National Treasury building. FILE PHOTO | NMG

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Summary

  • The Treasury has projected the pension department will require Sh153.64 billion in the financial year starting July 2021 to honour monthly pensions claims and gratuity pay by senior citizens.
  • This is a 38.24 percent jump over revised Sh111.14 billion budget for the current year ending June on the back of more than 60,000 public servants retiring in the past three years.

Mass retirement of civil servants has pushed pension payouts to more than Sh150 billion, underlining the burden of a fast-aging public service to taxpayers on the back of delays in implementing reforms in the past.

The Treasury has projected the pension department will require Sh153.64 billion in the financial year starting July 2021 to honour monthly pensions claims and gratuity pay by senior citizens.

This is a 38.24 percent jump over revised Sh111.14 billion budget for the current year ending June on the back of more than 60,000 public servants retiring in the past three years.

Some 20,300 public servants were earlier projected to have retired in the year ended June 2020, up from 19,800 a year earlier and 19,300 in the financial year 2017/18.

Monthly pension payouts are forecast to rise to Sh64.1 billion next fiscal year from Sh55.24 billion, while gratuity — which are paid in lump sum based on years of service — are seen climbing to Sh68.47 billion from Sh55.71 billion.

Gratuity and monthly pension for civil servants will account for 59.1 percent, or Sh90.8 billion, of the estimated claims in the year starting July followed by payouts to the military personnel which are estimated at Sh29.76 billion.

The pension bill pressure is partly blamed on delay by the Treasury to enforce various reforms, including a contributory pension scheme, despite a knee-jerk policy decision in 2009 to raise the retirement age from 55 to 60.

This has seen pension claims, paid directly from the exchequer, surge from Sh27.1 billion eight years ago to the projected Sh153.24 billion, according to statistics published by the Treasury. The Treasury only implemented the contributory Public Service Superannuation Scheme in January 2021, nearly nine years after the law — Public Service Superannuation Scheme (PSSS) Act— was enforced.

Public servants below the age of 45 are now being deducted two percent of their gross pay towards pension savings this year, deductions which will double to five percent next year and 7.5 percent in 2023 after the contributory scheme was enforced. This is optional to those aged 45 and above.

The government, which matches every worker’s monthly contribution with 15 per cent of the salary, has allocated Sh20.8 billion to the scheme in the next fiscal year from Sh7.3 billion in the current budget.