A headache for President Ruto as 85,000 public employees get ready to retire
In light of the impending retirement of 85,000 public employees, President Ruto is in pain. Taxpayers would likely be further burdened by the retirement of over 85,000 teachers and civil servants over the course of the next three fiscal years, with annual pension costs predicted to average close to Sh210 billion.
President William Ruto’s administration will have nightmares for the next three years starting in July 2023 as a result of rising pension liabilities and debt repayment costs, according to the Treasury.
During the review period, the National Treasury’s Pensions Department anticipates handling 85,400 claims, which represents the number of public employees who will retire.
In this fiscal year, which ends in June 2024, 30,155 workers are predicted to lose their positions, with that number reducing to 28,745 the following year and 26,500 the year after.
In three years, Sh625.55 billion is anticipated to be spent for gratuity (paid in a lump amount), ordinary pension (remitted on a monthly basis), and contribution to the public sector retirement system.
For the current fiscal year, the Treasury has budgeted Sh189.09 billion for pension expenses. This amount is anticipated to increase to Sh207.85 billion in fiscal year 2024/25 and to Sh228.61 billion in the fiscal year that follows.
Debt costs and pension expenditures have prevented the Ruto administration from receiving money for crucial projects like highways, affordable housing units, and power transmission lines. Mass retirements have also brought attention to an employment problem in the aging civil service.
Njuguna Ndung’u, the Treasury Cabinet Secretary, has already warned that the budget is in serious jeopardy due to the growing pension cost.
The 2023 Budget Policy Statement (BPS), the government’s spending blueprint, stated that “with an increasing number of retired officers, dependents, and an increased life expectancy rate, the pension wage bill has been rising exponentially, posing a fiscal risk.”
“To further mitigate fiscal risk, the government will ensure timely remittance of the required contribution to defined contribution schemes to reduce potential litigation costs and encourage appropriate investment choices,” the government said in a statement.
In the fiscal year that concluded in June, cash payments for pensions, gratuities, and the Public Service Superannuation Scheme (PSSS) fell short of the goal by Sh36.28 billion.
This happened after the Treasury spent Sh136.36 billion, 21.02 percent less than the goal of Sh172.64 billion for the fiscal year.
As President Uhuru Kenyatta’s maximum two terms of five years each came to an end, the pension payment was a remarkable Sh9.27 billion, or 6.37 percent, less than the Sh145.63 disbursed the year before.
The Treasury scaled back the continuous updating of the Pensions Management Information system, which aimed to automate and consolidate all pension payroll systems, at the same time as the decrease in the payment of retirement benefits and savings obligations, which was a first charge in government spending.
By the end of the fiscal year, the Treasury said it hoped to complete 60% of the work on the new system, down from 70% earlier.
According to Prof. Ndung’u’s budget statement on June 15, “the National Treasury will invest in cutting-edge technology and digital solutions to streamline pension processes and improve 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.”
With payment due in 21 days, the pensions department normally seeks to process 600 files every week.
Recently retired government employees from all over the nation are currently required to personally transport validation documents to Nairobi for verification and clearance.
A fast aging public sector has increased the pension payroll recently, placing additional burden on taxpayers as a result of earlier delays in enacting reforms.
The burden on taxpayers has remained high despite a rushed decision to raise the retirement age from 55 to 60 in 2009. This is partly because Treasury had previously been reluctant to implement important reforms, such a contributory plan.
From Sh25 billion in the fiscal year ending June 2009 to Sh189.09 billion in the current fiscal year ending June 2024, pension claims paid directly from the exchequer have increased.
Ordinary pensions of Sh82.93 billion, lump sum payments (commuted pensions) of Sh73.85 billion, and contributions to the public sector pension fund of Sh28.46 billion make up the current budget.
Civil servants did not start paying into their pension until January 2021, when payments came straight from taxpayers, unlike employees in the commercial sector.
Following the Treasury’s implementation of a contributing pension plan, public employees under the age of 45 will begin contributing 2% of their gross income to retirement savings in 2021. This percentage will increase to 5% in 2022 and 7.5% this year.
15% of the gross salaries of workers in the public sector are contributed by the government.
The PSSS system had 369,878 permanent and pensionable public employees who were 45 years of age or younger by the end of June 2022.
Under the PSSS, employees who leave the public sector are eligible for pension payments after five years, regardless of their age.
This is in contrast to the previous system, under which a worker had to leave the government for ten years before becoming eligible for benefits or turning 50.
The government contribution remains the same, although civil authorities are allowed to increase their payments above 7.5 percent of their income.
The Public Service Superannuation Scheme (PSSS) Act was passed in 2003, but the implementation of the contributing retirement plan was put off for more than eight years.
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