A public service report released last month shows that 53 per cent of public service workers are aged above 45 years.
The government will match this with a monthly contribution equivalent to 15 per cent of a worker’s salary.
The 2017/18 budget has set aside Sh71.8 billion for pensions, with the amount set to go up to Sh86.2 billion in 2018/2019 and Sh104.4 billion in 2019/2020
Taxpayers will still foot a huge pension bill for public sector retirees — even after they move to a contributory scheme next month — due to a large number qualifying to continue with the old scheme.
A public service report released last month shows that 53 per cent of public service workers are aged above 45 years.
This group has the option of either joining the proposed contributory scheme or remain in the current defined scheme where benefits are computed based on the length of service and the salary in the final year.
The taxpayer therefore faces a larger burden of paying part of the contributory scheme, while continuing to service existing pensions for over 200,000 pensioners whose number will grow when older workers who opt out of the new scheme retire in the next 15 years, a fund manager has cautioned.
“The total budget for pensions is the money for the current year’s contributions as well as the current year’s benefit payments.
In short the government has a double whammy because it has to contribute for the current membership as well as pay the benefits for those who have retired,” said Alexander Forbes Financial Services chief executive Sundeep Raichura yesterday.
“From time to time actuarial valuations are carried out, and I understand that there is a significant government liability that is unfunded. Obviously, the government will need to continue accruing that expenditure and paying as it arises.
‘‘In terms of the total unfunded liability, the figure will be large.” Under the new scheme, civil servants will 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 will match this with a monthly contribution equivalent to 15 per cent of a worker’s salary.
It has announced a Sh17 billion allocation as seed money to kick-start the new scheme in the next fiscal year.
The 2017/18 budget has set aside Sh71.8 billion for pensions, with the amount set to go up to Sh86.2 billion in 2018/2019 and Sh104.4 billion in 2019/2020.
