Sh6.9bn set aside for pension scheme

The much-awaited contributory pension scheme for civil servants and teachers is finally set to start running in the next financial year after the government allocated Sh6.9 billion for the programme.

National Finance Secretary Henry Rotich included the money in the Pensions Department’s kitty, effectively clearing the programme for implementation four years since it was mooted in 2009.

The scheme will see Government as employer contribute 15 per cent of each worker’s basic salary to the pool of funds that is envisaged to accommodate all civil servants and teachers below the age of 45.

Civil servants will contribute two per cent of their basic monthly pay to the scheme in the first year, five per cent in the second year and 7.5 per cent from the third year onwards.

Life insurance policy

Although Mr Rotich did not state the effective date, the Treasury had last month done a brief to the International Monetary Fund indicating that the programme for civil servants is set to start on July 1.

The government will also take out and maintain a life insurance policy worth a minimum of five times the member’s annual pensionable emoluments.

The policy comes with disability benefits for each member of the scheme.

The allocation of Sh6.9 billion is expected to be the cost of the programme for half the financial year. Signs are that it could fully roll out in the second part of the next 12 months.

Last year, the Treasury allocated Sh15 billion as seed money for the scheme in the Budget Policy Statement released in March — money that was removed from this financial year’s expenditure estimates tabled in Parliament last June.

Pensions Department’s public communications officer Michael Obonyo confirmed the allocation yesterday, but gave no starting date.

“The commencement date will be by notice so we are waiting for that,” Mr Obonyo said of the Public Service Superannuation Scheme Act, which then President, Mr Mwai Kibaki, assented to in May last year.

Mr Obonyo said the scheme will also cover staff in the disciplined forces and prisons.

In his budget statement, Mr Rotich also allocated Sh38.2 billion for pension in the next financial year. The financial year coincides with the period when civil servants and teachers who were allowed to extend the retirement period from 55 years to 60 elapses.

The retirement age was raised from 55 years to 60 in 2009.

Averting budget crisis

The plan to migrate civil servants to a jointly-funded retirement scheme was principally aimed at averting a budget crisis over the rising pension costs.

At the time of shelving the plan last year, pensions secretary at the Treasury Ann Mugo said the scheme was put on hold because the law authorising the government to deduct civil servants’ salaries was not expected to be in place by July 1 last year when contributions to the scheme were expected to start.

“It would take some time to set up the governance structures like appointing the board of trustees, fund managers and the administration mechanism before contributions from both employees and employers commence,” she said.