Heavier taxpayer burden as pension bill set to hit Sh109bn

What you need to know:

The Treasury forecasts it will need Sh109 billion in the year starting next July for pension payouts, up from the current Sh90.6 billion — reflecting a 20 per cent rise.
At Sh109 billion, the amount will be equivalent to about one per cent of the country’s forecast productivity or gross domestic product (GDP) and dwarfs the Health ministry’s Sh85.9 billion allocation.
The rising number of retirees has seen the pension bill rise by more than 20 per cent over the three years, making it the fastest rising budget item.
The bill has more than doubled from the Sh53.4 billion it paid in the year ended June 2016, denying the State cash for critical spending like roads, health and water supply.

Kenya’s public pension bill will breach the Sh100 billion mark in the next financial year, reflecting the burden of keeping retired civil servants comfortable in old age as 60,000 of them exit employment within three years.

The Treasury forecasts it will need Sh109 billion in the year starting next July for pension payouts, up from the current Sh90.6 billion — reflecting a 20 per cent rise.

At Sh109 billion, the amount will be equivalent to about one per cent of the country’s forecast productivity or gross domestic product (GDP) and dwarfs the Health ministry’s Sh85.9 billion allocation.

Part of the pension time bomb build-up has been attributed to the government’s failure to push through necessary reforms, including kick-starting the long awaited contributory pension scheme.

The time bomb has continued to tick despite the decision nine years ago to increase the retirement age from 55 years to 60 years.

This was meant to slow down the number of retirees entering the pension pool and offer the government some headroom to set up the contributory pension scheme, but the latest budget estimates show it has not reduced taxpayers’ burden.

Under the scheme, civil servants were to contribute two per cent of their salary to the retirement scheme in the first year, five per cent in the second and 7.5 per cent from the third year onwards.

The government was to match every worker’s monthly contribution with another 15 per cent of the salary. Treasury data show that more than 10 per cent or 59,400 of the half a million public sector workers will retire by June 2020, amid fears that the State will be forced to retain some workers beyond the retirement age of 60 due to a skills shortage.

“The total number of retirees is projected to rise from 19,300 in the financial year 2017/18 to 19,800 in the year 2018/19 and further to 20,300 in 2019/20,” said the Treasury.

The rising number of retirees has seen the pension bill rise by more than 20 per cent over the three years, making it the fastest rising budget item.

The bill has more than doubled from the Sh53.4 billion it paid in the year ended June 2016, denying the State cash for critical spending like roads, health and water supply.