Public universities and county governments pushed up unremitted pension contributions by 12.3 percent to Sh47.16 billion in the year ended June 2024, exposing thousands of workers to struggles in retirement.
The Retirement Benefits Authority (RBA) says in the latest annual report that the money deducted from workers as retirement savings but not remitted to pension schemes rose from Sh42 billion, in what poses a threat to the social security of pensioners.
“This challenge largely affects quasi-government institutions, which mainly comprise public universities and county governments. To address the challenge, the authority has continued to engage various stakeholders including National Treasury and the National Assembly with a view of securing commitments for the funds to be remitted to schemes,” says RBA in the annual report.
Late remittance of pension deductions is penalised in Kenya at the rate of Sh20,000 or five percent of the outstanding amount every month, whichever is higher. The persisting rise in non-remittances means that the fine has failed to deter the vice or the entities involved are cash-strapped.
The Treasury has not been any better for retired civil servants. For instance, it failed to release at least Sh23.78 billion for about 260,000 retirees in the financial year ended June 2024 due to “liquidity challenges,” showing that workers’ woes start during employment and follow them to retirement.
RBA said the pile up in non-remitted pension comes in an environment where the sector is grappling with low savings.
While the International Labour Organisation recommends a minimum income replacement rate of 40 percent, Kenya is at 32 percent, meaning that most of the retiring workers’ will not be able to maintain their standard of living.
The pension coverage in Kenya is at 26 percent, showing that many workers, especially in the informal sector, are not saving for sunset years.
Kennedy Keli, general manager for pensions at Liaison Group, says the accumulation of unremitted pension contributions poses significant risks to both individual savers and the broader financial system.
“When employers fail to remit contributions to pension schemes, it compromises the integrity of the pension funds and can lead to insolvency issues, ultimately jeopardising the financial well-being of retirees,” said Mr Keli.
“When employees observe that their hard-earned contributions are not being properly accounted for, it breeds distrust in the pension system.
“This erosion of trust not only dissuades individuals from saving but also diminishes their willingness to engage in long-term financial planning.”
Mr Keli adds that widespread unremitted pensions may tempt individuals to short-term savings strategies, sacrificing future financial stability for immediate gratification.
The Treasury estimates showed about 85,400 public service workers will retire in three years to June 2026.
The pensions department said 30,155 were retiring in the year ended June 2024, followed by 28,745 in the current financial year and 26,500 in the following financial year.
