advertisement
Economy

Retirees’ pay rise lifts pension bill by Sh1.5bn

Retirees
Retirees: Public servants do not contribute to their retirement upkeep. FILE PHOTO | NMG 

More than 300,000 retired civil servants will next month receive a three percent pay rise, adding to the cost of keeping them happy in old age as the public sector retirement costs hit Sh104.4 billion this year.

The adjustment is in keeping with the tradition of increasing the monthly pension by three percent every two years in the race to match the rising cost of living.

At three per cent, the enhancement still trails inflation - or the cost of living measure — which stood at 4.3 percent last year and 9.2 percent in 2017.

The move is equivalent to an increase of Sh1.5 billion based on the pension bill of Sh50.1 billion — which excludes the Sh54 billion paid as gratuity -- for the year to June.

"The retirees should expect a three percent review. We do it every two years and additional cash is already factored in the budget," a source at the Treasury said.

advertisement

"The increment starts in July, meaning we will pay the retirees arrears for the unpaid three months."

Retirement costs

The review, combined with the number of civil servants who will have retired in the two years to June 2020, will see the retirement costs jump from Sh86.2 billion in the year ended in June to the current Sh104.4 billion and Sh126 billion in the next budget.

Part of the pension build-up has been blamed on the Government’s failure to push through necessary reforms, including starting the long-awaited contributory pension scheme.

Civil servants, unlike workers in the private sector, do not contribute to their pension and their benefits are paid straight from taxes.

This pension time bomb has continued to tick despite the decision nine years ago to raise the retirement age from 55 years to 60 years.

This was to slow down the number of retirees entering the pension pool and offer the Government headroom to set up the contributory pension scheme, which has been shelved several times.

Pay rise

The pensioners' pay rise comes amid a cleanup of the State payroll after a headcount revealed that about 40,000 retired civil servants are dead yet continued to be paid their pension irregularly.

The State had been paying relatives and dependents of dead people retirement benefits, helped by the growing use of ATM cards and mobile banking, which do not require the physical presence of beneficiaries in banking halls.

Most pensioners were previously paid through the State-owned Postbank, which demanded that the retirees appear in person to withdraw their benefits.

But the automation of the banking sector and extending the payments to all of Kenya’s 42 banks has in recent years reduced the need for pensioners to collect their benefits from tellers.

advertisement