Henry Rotich
Treasury

Civil servants’ Oct pay cut 7.5pc for pension

Civil servants will from October be deducted 7.5 per cent of their salaries for their pension contribution, lowering benefits of the pay increase that took effect last July.

Treasury secretary Henry Rotich has informed Parliament that the delayed civil service pension scheme will start in October as Kenya struggles to meet rising public servants retirement costs.

Public servants do not contribute to their retirement upkeep, a move that will increase taxpayers’ pension burden to Sh86.2 billion in the year starting July from Sh15 billion in 2002.

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

“The government has allocated Sh15.3 billion to the scheme in the scheme in the financial year 2018/2019, which is projected to rise to Sh33.8 billion over the medium term.”

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 July. The government will match the contributions with an amount equivalent to 15 per cent of every worker’s monthly pay.

The government had last year timed the launch of the contributory pension scheme to coincide with the July review of public servants pay.

Civil servants’ basic pay increase by between 16 and 30 per cent in a review that cost taxpayers Sh20 billion in the current year.

The Sh17.9 billion that was meant to start the scheme last year was diverted to settling former teachers’ retirement arears following a court order which saw Director of Pensions Shem Nyakutu committed to jail for contempt after delaying to pay the tutors.

The contributory scheme has been dogged by numerous challenges that have seen its roll-out suspended more than five times since its inception in 2009.

The contributory scheme will see the government adopt the private sector pension model where contributions from employers and employees are invested in equities, property and government paper to generate returns.

The responsibility of the government will be monthly contribution as opposed to the current structure where it pays for retired civil servants’ pension.

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