Taxpayers will spend an additional Sh23.78 billion to pay off public servants who are retiring after attaining the age of 60 in line with a presidential directive aimed at curtailing growth in the wage bill.
Budget documents tabled in the National Assembly show that the Treasury is seeking approval from lawmakers to increase the pension bill to Sh223.15 billion this financial year ending June 2025, up from an initial estimate of Sh199.37 billion.
The Treasury is seeking an additional Sh15.55 billion to pay off gratuity expenses (paid in a lump sum), raising the budget to Sh85.76 billion, while ordinary pension (remitted monthly) is set to rise from Sh5.66 billion to Sh93.78 billion.
The remainder of Sh2.56 billion additional cash will go into the Public Service Superannuation Scheme (PSSS), raising the government’s projected contribution to the scheme in the current fiscal year to nearly Sh36.98 billion.
Gratuity—a sum of money paid to an employee at the end of a period of employment—will take up more than half (57.52 percent), or nearly Sh13.68 billion, of the additional funding. The lump sum dues to the retiring military staff are set to increase by Sh1.88 billion.
The monthly pension bill for civil service has been increased from Sh4.97 billion to Sh64.54 billion, while the military’s is up by Sh6690.65 million to Sh13.13 billion.
The pension budgets for widows and children, dependants, and injury expenses for the military have been left unchanged.
Workers under public service are required to retire at 60, except those persons with disability who exit at 65 and university lecturers at 70.
The exact number of those who have been affected by Dr Ruto’s directive has not been made public yet, but the latest disclosures point to more than 5,000 workers.
The latest report by the Public Service Commission shows that some 4,547 public service workers were aged above 60 a year ago in June 2023, while 25,879 others were between 56 and 60.
Over the years, the government has retained some workers in senior management and technical expertise on payrolls beyond the age of 60 to coach and train their juniors and avert a skills shortage in an ageing public service.
Dr Ruto’s directive has unsettled this decades-old practice, and the Treasury has moved to allocate cash to facilitate a smooth transition.
Unrelenting youth-led demonstrations against tax raises, elevated living costs, and bad governance prompted Dr Ruto to withdraw Finance Bill 2024, punching a budget hole of Sh346 billion, which has forced the government to institute a raft of expenditure cuts.
As part of the austerities, the President also opted to exit ageing officers from the public service to appease the dominant, relentlessly youthful population hit by high unemployment.
“Henceforth, public servants who attain the retirement age of 60 shall be required to immediately proceed to retirement,” Dr Ruto ordered on July 5.
“They are directed to do this with no extensions to their tenure of service.”
Before the President’s directive, some 85,400 public service workers were expected to retire in three financial years ending June 2026, according to the Pensions Department at the Treasury.
These comprise 30,155 workers in the just-ended financial year, 28,745 this fiscal year ending June 2025, and 26,500 in the subsequent year.
Job crisis
The number has now risen, with workers, largely those with special technical skills and expertise whose employment had been extended, now expected to exit public service.
The rising pension bill expenses, triggered by the mass retirements, have brought to the fore a possible job crisis in the ageing civil service amid the suspension of new recruitment pending completion of a planned audit and cleansing of public payrolls and pension bills to “eliminate ghost workers”.
The pension bill pressure has continued to pile on taxpayers following a knee-jerk decision in 2009 to raise the retirement age from 55 to 60, partly due to the Treasury’s past failure to push through necessary reforms, including the launch of a contributory retirement scheme.
This has seen pension claims, paid directly from the Exchequer, surge from Sh25 billion in the financial year that ended June 2009 to a projected Sh223.15 billion for the current year ending June 2025.
Civil servants, unlike workers in the private sector, did not contribute to their pension until January 2021, when their benefits were paid straight from taxes.
This changed after the Treasury rolled out a contributory pension scheme—the PSSS—where public service workers under 45 initially contributed two percent of their gross pay towards their retirement savings in 2021, rising to five percent in 2022 and 7.5 percent from last year.
The government contributes 15 percent of the gross pay of the public service worker.
This has come on the back of the Treasury disclosing earlier this year that cash-strapped state-owned entities had not remitted nearly Sh42.06 billion in employer contributions at the end of the financial year ended June 2023.
The boiling pension crisis, Treasury said in the 2024 Budget Policy Statement, poses “a huge challenge to the social security of the pensioners who may retire without a pension”.
Unremitted employer pension contributions are listed as the second biggest pending bills for the parastatals after arrears owed to suppliers of goods and services and contractors of projects.
“The Retirement Benefits Regulations require pension contributions be remitted to a custodian or guaranteed fund within ten days of every calendar month,” the Treasury writes in the 2024 BPS which provides the expenditure ceilings for public entities for this financial year.
“According to the Retirement Benefits Authority, as of June 30, 2023, the outstanding public sector schemes contributions amounted to Sh40.8 billion, excluding penalties and interest charged for late remittances.”
Late remittance of pension deductions is penalised in Kenya at the rate of five percent of the outstanding amount every month the sum remains unpaid.
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