MANAGING PUBLIC SECTOR PENSION

LIABILITY FOR A FISCALLY SUSTAINABLE

PUBLIC SECTOR WAGE BILL

PRESENTED BY
MICHAEL KAGIKA, EBS
PRESENTATION OUTLINE

• The origins of pensions in Kenya ;

• The structures of the pensions scheme;
• Management of pensions in the public sector;
• The legal framework;
• An outline of the current scheme and expenditure trends;
• Reforms in the public pension schemes;
• Way forward
 ORIGINS OF PENSIONS IN KENYA
• Payment of pensions and allied benefits to civil servants was started by the colonial Government
in 1927.
• The Pensions Act Cap 189 came into operation on 1st January 1946
• The Kenya Retirement Benefits Sector falls under the social and economic pillars of the Kenya
Vision 2030.
• The UN Sustainable Development Goal No. 1 also seeks to end extreme poverty in all its forms
everywhere through the implementation of nationally appropriate social protection systems and
measures for all by 2030.
• The purpose of a pension system is to reduce old age poverty
• It also provides for a smooth consumption between working years and retirement years (this
Implies that those who earn and consume more in working years will consume and earn more in
retirement years)

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 STRUCTURES
• Employment in the public service is managed by the Public Service Commission,
the County Public Service Boards, County Assembly Service Boards and respective
State Corporations and Independent Commissions and Offices.
• These employers in liaison with the Salaries & Remuneration Commission, set the
terms of service of employees including their retirement benefits.
• There is therefore no one body charged with the central management of the number
of employees joining the public service.
• The bulk of the public service employees is spread out to other government
agencies, i.e. Teachers Service Commission, National Police Service, Kenya
Defence Forces, State Corporations, Independent Commissions and Offices who
employ in line with their needs.

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 PUBLIC SERVANTS SPREAD – ACTUARIAL
STUDY 2014
Category Male Female Total

Civil servants 75,340 52,399 127,739

Teachers 146,658 125,851 272,509

Disciplined force 85,463 13,360 98,832

Other Agencies 35,936 3,640 39,537

Total 343,397 195,250 538,647

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 PENSION MANAGEMENT IN THE PUBLIC
SERVICE

• The Pensions Department of The National Treasury is mandated to administer

pension schemes for various categories of public servants which include Civil
servants, Teachers, The National Police, Correctional services, Judges,
Parliamentarians, Retired Deputy/Vice Presidents, Retired Presidents and
Dependants.
• Benefits under this scheme ( defined non contributory scheme) are paid from the
Consolidated Funds Services (CFS),
• The pensions budget for the current Financial Year 2019/2020 is Kshs 104 billion.

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 LEGAL FRAMEWORK

• The Management of Public Service pension schemes is governed by the National

Treasury, relevant laws and regulations.
• Pension Act Cap.189
• Pensions Increase Act Cap.190
• Asian Officers' Family Pensions Act Cap.194
• Widows' and Children’s Pensions Act Cap.195
• Parliamentary Pensions Act Cap.196

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 LEGAL FRAMEWORK

• Presidential Retirement Benefits Act No. 11 of 2003

• Public Service Superannuation Scheme (PSSS) Act (Act No 8 of 2012)
• Retirement Benefits (Deputy President and designated State Officers) Act No.8 of 2015
• Kenya Defence Forces (Pensions and Gratuities) Regulations 2017

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 PROVISIONS UNDER THE CURRENT
DEFINED BENEFIT SCHEME (CAP 189)
The provisions of the current public service pension scheme include
• The assurance of monetary gratuity at the end of his/her tenure.
• Commutation up to ¼ of ones pension is payable as gratuity. The remining ¾ is paid as monthly
pension for the rest of a pensioners life.
• In the event of death of a pensioner, five years dependants' pension is payable to the surviving
spouse or children below 24 years.
• Retention of experienced officers ( the more the years worked the higher the gratuity, plus the fact
that it is not transferable to any other scheme)

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 CURRENT SCHEME
However on the flipside the scheme notable disadvantages including:
• Pensions liability not always put into context (the CFS basket is assumed bottom
less).
• Public servants are not aware of amounts they have accumulated (they are not able to
peg the gratuity as part of one’s investments, we tend to value what we sweat for).
• It is seen as a gift and not part of emoluments. ( When negotiating for salaries it is
not factored).
• One foregoes their pension benefits in the event of resignation before attaining the
retirement age of 50 years .

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 PENSION EXPENDITURE TRENDS
• The GOK has provided retirement benefits to Public servants through a DB paid from
the CFS. Only the WCPS was contributory at a token rate of 2% contribution compared
to the benefits paid (Widow for life).
• The pension burden has been on the increase in Kenya, and is projected to increase
further, the actual expenditure having increased from 27.9 billion in 2013/14 to 63.19 in
2017/18.
• The Pension Budget for FY 2018/2019 stood at Kshs 70.1 billion while the expected
expenditure for 2019/2020 is Kshs 104 billion
• This figure is expected to rise further to 152.9 billion by 2022/23.

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 PENSION EXPENDITURE TREND

2017/1
63.19
8

2016/1
56.4
FINANCIAL YEAR

2015/1
51.34
6

2014/1
35.23
5

2013/1
27.69
4

0 10 20 30 40 50 60 70

AMOUNT IN KSHs BILLION

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 ARE PUBLIC SERVICE PENSIONS SCHEMES
SUSTAINABLE?
-The burden of the retirement benefit schemes is felt 50 to 75 years into the future.
Countries with unfunded Pay As You Go (PAYG) schemes are likely to face periodic
deficits that are covered by some combination of general taxes and public debt Kenya
being no exception.
Life expectancy is projected to increase from 54 years today to 68 years by 2050. As
a result of these trends, the fastest growing population groups in Kenya are 15 to 64
years—and these are exactly the population groups that work. From only 22 million
working-age people today, Kenya by 2050 will have about 56 million working-age
people.

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 IMPLICIT PENSION DEBT
• Salary Reviews are aimed at cushioning workers against ever rising cost of living, in the
final analysis such salary increases have a direct bearing on pension cost as pension is
calculated based on the last salary.
• As at 2013 the contingent liability was estimated Ksh 990 Billion following an actuarial
study commissioned by SRC.
• This was an increase of 98% from the Kshs499 Billion assessed as at year 2008. ( a period
of only 5 years)
• The long-term effect on this is that the pension expenditures based on final salary
unfunded PAYG scheme such as the Civil Service one is now close to 6% of the revenues
collected for the FY 2019/2020.

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 PENSION LIABILITY AS A PERCENTAGE
OF REVENUE
PUBLIC SECTOR PENSION LIABILITY AS A % OF
5 REVENUE
4.30743013
4.5 4.163828062 3.963457484
4
3.179602888
3.5
2.841696274
3
PERCENTAGE

2.5
2
1.5
1
0.5
0
2013/14 2014/15 2015/16 2016/17 2017/18

FINANCIAL YEARS

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 PENSIONS LIABILITY AS A PERCENTAGE
OF GDP
% of pension to GDP
0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
2013/14 2014/15 2015/16 2016/17 2017/18

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 PENSIONS AS A PERCENTAGE OF WAGE BILL

2017/18 8.6%

2016/17 8.5%

2015/16 8.4%

2014/15 6.7%

2013/14 5.3%

0 1 2 3 4 5 6 7 8 9 10

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TNT|©2019 | PENSIONS DEPARTMENT | ALL RIGHTS RESERVED
 PUBLIC PENSION REFORMS
• As part of the pay and benefits reforms the Government approved the introduction of a
funded contributory pension scheme with effect from 1st July 2009. The PSSS is aimed
at reforming the Public Service Pension Scheme.
• The scheme was to be mandatory for new entrants and all employees aged 45 years and
below as at 30th June 2009.
• Employees aged 45 and above were to opt to join the new scheme and submit their
record to Director of Pensions by 31st July 2009.
• However the PSSS did not take off because there was no legal framework in place.
The PSSS.
• In 2012 the PSSS Act was enacted.

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 PUBLIC SERVICE SUPERANNUATION
SCHEME (PSSS)
The provisions in the PSSS include:
• Covers all civil servants, government teachers and officers in the disciplined services
• Shared contributions at the rate of 7.5% and 15% for employee and employer
respectively.
• It is portable
• It is personalized (benefits can be used as collateral for mortgage)
• The board of trustees will be representative of members drawn from employee unions
and the government.

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 FURTHER PROVISIONS
• Employees resigning or dismissed before 5 years vesting period will
access their contributions in full with interest.
• After 5yrs in the scheme a member will access 60% and at 10 years
access 100% of the employer’s contribution.
• Benefits of a member accrued under the non-contributory scheme
will be calculated and paid as per the current Pensions Act (Cap 189).
• The PSSS is non discriminatory.
• It is tax deductible

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 PUBLIC SERVANTS NUMBERS AND AGE

CATEGORY 45 AND Below 45 + NEW ENTRANTS FROM 2009

Civil servants 56,206.00 71,533.00 48,591.00

Teachers 135,046.00 137,463.00 95,463.00

Disciplined forces 72,006.00 25,817.00 41,851.00

Other Agencies 21,170.00

Total 263,258.00 234,813.00 207,075.00

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 OPPORTUNITY LOST BY THE DELAY TO
IMPLEMENT PSSS
• If the scheme was implemented in the financial year 2013/2014, Government
contribution would have been Kshs.13.8 billion and employees saving of
Kshs.6.9 billion yearly. This implies that the fund would have invested
Kshs.20.7 billion every year.
• The PSSS would have accumulated Kshs.103.5 billion by the year ending
June 2018/2019 - 5 years later.

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 REALIZING THE REFORMS
• Roll out the contributory pension scheme pursuant to the PSSS Act 2012.
• Integrate PMIS with other Government information management
systems e.g GHRIS, IPHRS
• Reorganise the pensions department in view of its enlarged mandate.
• Review and consolidate the various public service pension laws to accord
with the constitution to ensure equity and fairness across the public
service.
• Finalize the development of the National Pensions Policy.
• Establish an electronic biometric pensioners data base.

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 THE END
Thank you
Michael Kagika EBS
Pensions Secretary/Director of Pensions

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