Pension burden as State to spend Sh104bn on retirees in two years

Kenya will spend Sh104 billion in the next two years to pay retired civil servants, raising the red flag on the government’s ability to support its retiring workers.

The dilemma, however, remains how much State workers should set aside for their sunset days in an environment of increasing cost of living thanks to the tax burden.

And the increasing number of pensioners and government’s struggles to support them in their old age is a major cause for concern, according to Enwealth chief executive Simon Wafubwa.

“This is a worrying trend considering the level of national debt against national savings. We need to prioritise intervention measures including operationalisation of a contributory pension scheme for civil servants, which has failed to take-off since 2012,” Wafubwa told the Sunday Nation.

Civil servants will from this month be deducted 7.5 per cent of their salaries for their pension scheme as the country struggles to meet the rising public servants retirement costs.

The shift from a defined benefits to contributory scheme is part of the government’s efforts to stem the ballooning expenditure on pension payments on its rising retiree numbers.

At least 37 per cent of the current civil workers are expected to retire by 2030, according to the Public Service Commission.

“The government will implement the superannuation pension scheme from October,” Treasury Secretary Henry Rotich said in a notice to MPs in May.

He said there is need for an effective policy framework for enhanced coverage to bring aboard informal sector workers, which will in turn increase the funding pool for the ageing workers as they near retirement.

Enwealth is currently in talks with the industry regulator, Retirement Benefits Authority (RBA) in efforts to improve the management of pension schemes and ensure better sunset years for the current workers.

It has already come up with management interventions to help improve the country’s over 1,300 pension schemes to ensure they do not collapse or turn into pyramid schemes that cannot pay their members.

Schemes should integrate ICT-driven pension administration to improve operational efficiency targeting increased awareness to members and engagement.

The move for ICT solution ties with RBA’s plan to enhance and leverage on technology for effective and efficient operation within the sector, according to its 2014-2019 Strategic Plan.

The financial services provider is partnering with RBA to build the capacity and skills of trustees and sponsors of retirement benefit schemes on investment and governance decisions.

Wafubwa says prudent, responsible asset-liability matching and continuously analysing changes in the financial markets is key to boosting members’ savings.

Last year, RBA raised concern on the poor governance choices by fund managers to invest millions of shillings into banks that later collapsed, exposing members to huge losses.

Enwealth is also increasing savings through financial literacy trainings, member education, online self-evaluation tools, annual general meetings and quarterly updates to ensure members are well-informed on the health of their schemes.

Wafula says they are keen to address the major concerns facing Kenyan retirees, based on a survey conducted in June.

It ranked inadequate medical insurance to cater for the increasing risk of poor health as the biggest concern among retirees followed by the desire to leave a legacy and financial foundation for their children.

Retirees also cited lack of multiple sources of income in their post-working years.

“The growing number of the ageing population has now reached a tipping point that the concern of pensioners’ obligations in the current unfunded civil service pension fund is grossly unsustainable and should not be ignored,” Wafula cautions.