Unclogging Kenya’s pension conundrum


In May 2013, the Daily Nation ran the unfortunate story of Pascalia Wasike, a nurse at Navakholo Sub-District Hospital in Kakamega County, who died in 2007. While her family was hopeful that her pension, her main investment, would keep her two daughters, 14 and 16, in school in her absence, they did not know that 12 years down the line they would still be engaged in a goose chase for the money, which from her family, has proven to be an erratic, tiring and time-consuming process especially with the devolution of health services, compounding the process further. 

This together with a social media expose of two retired nurses from Othaya in Nyeri County, who, two years on, were yet to get their pension benefits, are but a few of the stories.

It is commonplace to find that most retirees appoint their spouses as pension beneficiaries, illustrating their desires to have their families provided for even after their demise. Ideally, a member of a pension scheme should immediately begin enjoying benefits once they reach the retirement age of 60. If, unfortunately, one dies, those rights are passed on to the nominated beneficiaries. And while Pascalia’s family lamented that they may not be badly off and can survive without, how about the households that can barely scrape through without these emoluments? 

While retirement is often a good season, this is not the case for many beneficiaries, who after being handed such rights have to pursue public pension schemes to hand them their benefactor’s savings. These savings in many families serve as the only source of income thus, considering the high national dependency ratio, may be very detrimental if not provided on time. With the ever-increasing pension crisis with the retirement of public servants per year, the State has been forced, in some circumstances, to retain some workers beyond the retirement age of 60. 

While this has been attributed to a skills shortage, the real reason might be the unavailability of retirement benefit funds to cater for these ballooning retirees with the decision to raise the retirement age from 55 years to 60 year in 2010 meant to slow down the number of retirees entering the pension pool and buy time for the Government to set up the contributory pension scheme, which has been a non-starter. This problem has not developed from oblivion; the pension time bomb build-up has been attributed to the government’s failure to push through necessary reforms, including kick-starting the long awaited contributory pension scheme. 

The Government has failed to move the current scheme to a defined contribution plan, a reform that has been put on hold since 2013 and which would have eased pressure on taxpayers in the long term. Under the scheme, civil servants were to contribute 2% of their salary to the retirement scheme in the first year, 5% in the second and 7.5% from the third year onwards while the Government, as the employer, was to match every worker’s monthly contribution with another 15% of the salary.

With the planned introduction of a management trainee plan this year to fast-track graduates into executive roles, trigger promotions and review blanket ban of fresh hiring to ease effects of the ageing workforce and the restructuring of the employment plan with the elimination of permanent and pensionable contracts set to balloon the current wage bill, a clear post-poning of this retirement menace is evident. 

With the gaping policy holes that have led to irregular processing of pension funds revealed in 2015 Auditor-General’s report on Pensions Management Information System, the Government proposes to address this through a head count aimed at smoking out ghost retirees gobbling up significant pension contributions which rather than assuage fears, has compounded fears of the imminent lack of funds. But even as the Government moves in to protect the pension kitty from potential fraudsters, perhaps it will be even more beneficial for it to streamline and ensure easy access to pension savings to the deserving. 

The pension industry has also faced problems with the lack of pre-funding of pension liabilities with government running the scheme on a pay-as-you-go basis using tax collections. With the formation of civil servants’ superannuation fund, a contributory scheme for employees of various ministries, an additional expense, pressure is expected to pile on the taxpayer. According to the Public Service Commission, the new fund will be guided by the Public Service Superannuation Scheme Act of 2012. At the same time, part of government’s contribution will be a direct charge on the Consolidated Fund. Stiff objection from the workers’ lobby has, however, ensured the pension burden remained on the taxpayer.

An increased number of retired public officers are caught in a pension quagmire occasioned by a supposed system failure that has delayed their dues. As such, Kenya can be said to be on the verge of a retirement crisis despite having legislation that has improved governance and operations of pension funds, with the government doing little to improve the coverage and adequacy of benefits in the country. Compounding this is the fact that even these savings have proven grossly insufficient to provide an adequate income during sunset years.

There is thus a need for urgent intervention by Government, regulators, employers and the pension industry to take stock of the situation and come up with policy reforms and measures that adequately improve the outcomes of contributors. Pensioners seem to have a limited understanding of their benefit options and the impact of their decisions on their financial security with a struggle to identify products suitable to themselves. 

Further, there is need for public sensitization on the dangers of premature opting to access maximum portion of retirement savings when changing jobs or leaving employment and its impact on final savings. This, together with uninformed options exercised by members of retirement funds when they retire such as members of provident funds opting to access their benefits as a lump sum which is normally used up quickly is very dangerous. 

The pension industry needs to play a bigger role in socio-economical development, and unless this is done early and continuously, there will be a continuous problem in economic development. This may include such measures as providing members with financial targets and helping them understand whether they are achieving them over time, redesigning pension schemes in such a way that funds are not locked away for long periods preventing access for emergencies; expanding the priorities within the schemes so that they can actually serve the needs of the people; wider coverage of the informal sector; better management of pension funds to create trust and improve savings among many other ways.

From the current trends, Kenya’s public pension bill is set for immense growth over the coming fiscal years with increase in the number of retirees and projected delayed disbursement of funds and the resultant increased pension budget to meet this. With the current procedural technicalities and mismanagement of the pension budget and the impact of inflation reducing the value of pension funds, it is not surprising that poverty lurks for many people upon retirement. It is about time we built a retirement plan molded on sound investment and savings and good policies.  

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