More Pain for Ruto As 85,000 Teachers & Civil Servants Retire
The retirement of more than 85,000 teachers and government employees over the course of the next three fiscal years will place additional strain on the taxpayers, with pension costs expected to average close to Sh210 billion each year over the review period.
With debt repayment rates on the rise, the Treasury has issued a warning that would cause President William Ruto’s administration sleepless nights over the next three years beginning in July 2023.
In order to represent the amount of public employees anticipated to retire, the National Treasury’s Pensions Department planned to handle 85,400 applications throughout the review period.
According to Treasury forecasts, 30,155 workers are anticipated to leave their jobs during the current fiscal year, which ends in June 2024; this number is anticipated to drop to 28,745 the following year and 26,500 the years after.
In three years, it is anticipated that the pension cost will total Sh625.55 billion and include payments for gratuity (paid in one lump sum), ordinary pension (remitted on a monthly basis), and contribution to the public sector retirement fund.
In the current fiscal year, the Treasury has budgeted Sh189.09 billion for pension expenses; this amount is expected to rise to Sh207.85 billion in the financial year 2024–2025 and then to Sh228.61 billion in the fiscal year that follows.
The Ruto administration is being denied the funding it needs for essential projects like roads, affordable housing units and power transmission lines due to debt bills and pension costs brought on by the mass retirements, which have also highlighted an employment problem in the ageing civil service.
Njuguna Ndung’u, the Treasury Cabinet Secretary, has already issued a warning on the rising pension cost, stating that the expense poses a serious risk to the budget.
Prof. Ndung’u stated in the 2023 Budget Policy Statement (BPS), a document that serves as the government’s spending guideline, that “the pension wage bill has been rising exponentially posing a fiscal risk with the increasing number of retired officers, dependants, and the increased life expectancy rate.”
“In order to further reduce the fiscal risk, the Government will ensure timely remittance of the required contribution to defined contribution schemes in order to reduce potential litigation costs and encourage appropriate investment choices,” the statement reads.
In the fiscal year that concluded in June, payments made for pension, gratuities, and the Public Service Superannuation Scheme (PSSS) considerably fell short of the desired amount by Sh36.28 billion.
This came after the Treasury issued Sh136.36 billion, which was 21.02 percent less than the fiscal year’s target of Sh172.64 billion.
The sum of the pension payments was a remarkable Sh9.27 billion (or 6.37 percent) lower than the Sh145.63 from the previous year, which signalled the end of President Uhuru Kenyatta’s maximum two terms of five years each.
The reduction in retirement benefit payments and savings responsibilities, a first charge in government spending, occurred in the same year that Treasury scaled back the continuing upgrading of the Pensions Management Information system, which was designed to automate and integrate all pension payroll processes.
From an early prediction of 70%, the Treasury stated in June that it aimed to finish 60% of the work on the new system by the end of the previous fiscal year.
Prof. Ndung’u stated in his Budget Statement on June 15 that “to efficiently administer the public service pensions, the National Treasury will invest in contemporary technology and digital solutions to streamline pension processes and enhance service delivery.”
“Public Service Schemes will create user-friendly online platforms in this regard to enable pensioners to conveniently access their pension statements, submit requests, and update their personal information.”
The pensions department typically aims to process 600 files every week on average, with payment due in 21 days.
Currently, all recently retired public employees must personally transport their validation documents to Nairobi for approval and certification.
Due to earlier delays in enacting reforms, the pension’s payroll has been increasing recently as a result of a rapidly ageing public service, placing further burden on taxpayers.
Despite a hasty decision to raise the retirement age from 55 to 60 in 2009, pressure on taxpayers has persisted in part because Treasury previously failed to push through critical reforms, such as a contributory scheme.
Pension claims, which are directly funded by the exchequer, have increased as a result, with projections for the current fiscal year ending in June 2024 ranging from Sh189.09 billion to Sh25.09 billion.
Ordinary pensions of Sh82.93 billion, lump sum payments totaling Sh77.56 billion (commuted pensions), and contributions to the public sector pension fund totaling Sh28.46 billion make up the current budget.
Contrary to employees in the private sector, civil officers were not required to make pension contributions until their benefits began to be paid out of taxes in January 2021.
More Pain for Ruto As 85,000 Teachers & Civil Servants Retire
This came after the Treasury implemented a contributing pension plan, under which public employees under the age of 45 paid 2% of their gross salaries towards retirement savings in 2021, increasing to 5% in 2022 and 7.5% starting this year.
15% of the public servant’s gross remuneration is contributed by the government.
By the end of June 2022, there were 369,878 permanent and pensionable public employees who were 45 years old or younger in the PSSS scheme.
Employees who leave the public sector are eligible for pension payments under the PSSS after five years, regardless of their age.
This is in contrast to the former programme, under which payments could only be received after 10 years had passed since a worker’s resignation from the government or when they turned 50.
The government share is still present, but civil officials are able to boost their payments to a level over 7.5 percent of their salaries.
After more than eight years since the Public Service Superannuation Scheme (PSSS) Act was passed into law, the contributory retirement plan’s introduction was anticipated to reduce the burden on taxpayers.