Capital Markets

Pension payments lag half-year target

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National Treasury building. FILE PHOTO | NMG

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Summary

  • Pension payouts to retirees in the six months to December was below the budgeted amount to be paid by the halfway point of the current fiscal year, pointing to delays in processing of claims.
  • Data from the National Treasury shows pension and gratuities paid in the period amounted to Sh42.8 billion representing 38.5 per cent of the current year’s retirement pay outs budget.
  • The Treasury plans to pay Sh111.1 billion to the retirees by the end of the year ending June 2021.

Pension payouts to retirees in the six months to December was below the budgeted amount to be paid by the halfway point of the current fiscal year, pointing to delays in processing of claims.

Data from the National Treasury shows pension and gratuities paid in the period amounted to Sh42.8 billion representing 38.5 per cent of the current year’s retirement pay outs budget.

The Treasury plans to pay Sh111.1 billion to the retirees by the end of the year ending June 2021.

The disbursements in the period represent a drop from the Sh50.2 billion that was paid out in the first half of the 2019/2020 financial year.

The lag in payment of retirees’ benefits has been attributed to increased backlog at the pensions office, partly due to disruptions caused by the work-from-home directive meant to control the spread of Covid-19.

“The value paid could indicate the delay in processing of new files and continued backlog as offices remained closed,” a pensions official from Association of Kenya Insurers (AKI) said.

The government has also been facing a rising pension burden, which combined with lower revenue collection last year due to the Covid-19 related tax cuts would have put a strain on the ability of the Treasury to finance retirees’ payments effectively.

In a bid to tame the rising pensions bill, the government from this month rolled out the Public Service Superannuation Scheme (PSSS) that will move public servants to a contributory scheme.

Civil servants in ministries and state agencies, teachers employed under Teachers Service Commission and police will be making monthly pension contributions equivalent to two percent of their salaries, increasing to five percent in the second year and 7.5 percent in the third year.

The government will match every worker's monthly contribution at the rate of 7.5 percent of the pensionable salary.

In the 2021/22 fiscal year, the Treasury has budgeted Sh132.8 billion towards pension payments, with the jump partly tied to the monthly obligations that the government will be required to make under the new scheme.