Recently I read in the media that Members of Parliament were thinking of reducing the retirement age for public servants from 60 to 55 years.
Their main argument for this policy change is based on the government’s agenda of creating jobs for the youth.
It is hard to grasp how laying off, say 5,000 public officers and replacing them with a similar number of group of young Kenyans, amounts to job creation.
Certainly, this should be described as replacement as opposed to job creation. There is no single new position created!
Another article that I read in the Daily Nation on July 30, 2023, stated that the Treasury was going to process 85,400 claims in the next three years and would accordingly pay a total of Sh685 billion as pension benefits.
The year-to-year estimated expenditure was given as for 2023/2024 at Sh189 billion and 2024/2025 at Sh207 billion.
I believe that the Members of Parliament may have made the opinion based on solid statistical analysis to inform this policy shift.
I started by looking at the last five years for a start. I was convinced in my mind that during the Covid-19 period, I expected life expectancy to have dropped.
Shock to me as I found out that it had increased from 66.18 years to 67.47, according to the United Nations - World Population Prospects report.
As a pension sector practitioner, these data worried me. I decided to pick a longer period for my analysis and went back from 1950 to 2030 projection before I could analyse the pros and cons and recommend what I found to be the correct policy decision.
I found out that life expectancy has been growing consistently from year to year since 1950. It therefore means that people are expected to live longer with each passing year.
Longevity risk started getting real as I investigated the live expectancy data set.
What does this mean to pension practitioners like me? It means that we are expected to pay retiring members for a long period after retirement. What risk does this have to the retiree?
The retiree will most likely exhaust his/her pension, annuity, or draw down fund for DC based scheme while still having more years to live.
Simply the retiree will be old and poor as he/she has no earnings in old age. Those of Gen Z watch out! Longevity is expected to increase into the year 2100, according to data from United Nations - 2022 Revision of World Population Prospects.
To manage longevity risk is to have people work for a little longer to increase their savings. Increased savings will sort two aspects of adequacy and longevity.
How then will longevity be resolved? One may ask. Look at the gap of 10 years from 55 to 65 years. There is a whole 10-year period where a member is working and saving for retirement.
Does Kenya have enough engineers, doctors, accountants, actuaries, environmentalists, weather scientists, and other professionals to replace the already serving?
Secondly, is it the government that creates jobs or the private sector? Finally, are they well trained to replace, or they will learn on the job?
These are some of the key considerations to investigate as we plan the policy shift. Otherwise, we will have negative externalities if the policy is implemented as proposed.
Judges in Kenya have their mandatory retirement age of 70 years but may elect to retire at any time after attaining the age of 65 years. Some research institutions and universities have their retirement age above 65 years.
Let us take a pause and look at the retirement age in other economies that have set the retirement age above 65 years.
Israel and Lesotho lead by setting the retirement age at 70 years followed closely by Mexico at 68 years. Barbados, Iceland, Greece, and Norway have their retirement age set at 67 years
Other negative externalities hereinafter follow. The National treasury does not have enough funds to pay both lump sum and monthly pensions. This will occasion the delays which brings untold suffering to the retirees. The alternative will be to increase taxes on the already overburdened taxpayers.
Either way, this will be an immediate government liability to be settled. Economic abuse of the elderly, besides being undesirable in any shape and form, is unconstitutional.
One form of economic abuse is the prevention of obtaining or keeping gainful employment such as this.
The members would be allowed to continue working and contribute towards economic growth as they have the skills and knowledge that are required.
Finally, there is justification for discriminating against those currently in public service on account of their age. Policymakers need to ensure that the policy does not expose the government to unnecessary litigation.
Retiring members need to be prepared well both mentally and financially. In order to support retirement employees, the government needs to support retirement planning programs.
These programs equip retirees with the necessary skills and knowledge which they need to settle well and enjoy their sunset years.
The writer is the Chief Executive Officer, Kingsland Court.
