Teachers and civil servants, including police, will in January have their take-home pay cut by 7.5 percent as they start contributing to their pension savings scheme.
However only teachers and civil servants below 45 years will start contributing to the mandatory scheme which is already gazetted.
CS Yatani said membership to the scheme will be mandatory to all new entrants upon commencement of the Act and all employees aged below 45 as at the date.
Employees aged 45 years and above will have an option to join the scheme by completing the Public Service Superannuation Scheme option form.
Records on the current service pension scheme indicate there are 375,000 teachers, 128,000 police and prison staff, more than 270,000 pensioners and 75,000 dependants.
The employees attached to ministries and State agencies will see a portion of their salaries sliced for onward remittance to the soon to be created Public Service Superannuation Scheme (PSSS).
This means that State workers will cede about Sh2.4 billion monthly or Sh28 billion to the fund that will emerge as Kenya’s largest pension scheme.
Treasury Cabinet Secretary Ukur Yatani has already set the stage for the setting up of PSSS—which will have a board and CEO— by announcing the January date when piblic officers will start contribution to the fund.
Mr Yatani said the move is aimed at reducing the pension burden currently borne in whole by the exchequer, especially in the Covid-19 era that has seen revenue sources depleted.
Teachers and civil servants, unlike workers in the private sector, do not contribute to their pension, with their benefits paid straight from taxes.
The free benefits will increase the taxpayers’ pension burden to Sh121 billion in the year starting July from Sh15 billion in 2002.
Part of the pension burden has been attributed to the government’s failure to push through necessary reforms, including kick-starting the contributory pension scheme that was first mooted eight years ago.
Civil servants were initially to contribute two per cent of their monthly salary to the scheme in the first year, five per cent in the second and 7.5 per cent from the third year.
But the staggering has now been stopped, with workers expected to contribute the 7.5 per cent of their pay in the first year, starting January.
The government will match the contributions with an amount equivalent to 15 per cent of every workers’ monthly pay.
This will be equivalent to about Sh6.9 billion monthly contribution or Sh55.87 billion annually, turning pension expenditures to one of the largest budget items.
The Treasury is spending more to keep retired civil servants comfortable in retirement compared to health (Sh111 billion), water (Sh83.3 billion) and energy (Sh72 billion.)
The government had in 2017 timed the launch of the contributory pension scheme to coincide with a bumper review of public servants’ pay.
Civil servants’ basic pay increased by between 16 percent and 30 per cent in a review that cost taxpayers Sh20 billion in the year starting July 2017, a rise that was expected to ease the pain of the pension contribution cut.
Past bids to slice a portion of the take-home pay for civil servants has been vigorously contested in the past, leading to the delays in implementation of the PSSS.
A 2009 actuarial study commissioned by the government found that there was a pension liability of Sh499 billion at the time owed to civil servants who have worked knowing the State would cater for the retirement costs. The liability nearly doubled to Sh990 billion in 2014.
“Benefits accrued prior to joining the new scheme shall be recognised in the form of an amount acknowledged through the issuance of a letter recognising accrued benefits at the date of joining the scheme under this Act,” said the Treasury brief.
Mr Yatani’s move effectively activates commencement of the PSSS Act 2012 Act that was assented to on May 9, 2012, but was yet to be effected.