President Ruto Faces a Headache as 85,000 Public Employees Prepare to Retire

President Ruto Faces a Headache as 85,000 Public Employees Prepare to Retire

President Ruto Faces a Headache as 85,000 Public Employees Prepare to Retire. The retirement of over 85,000 teachers and civil officials over the next three fiscal years is expected to place additional strain on taxpayers, with pension bills expected to average nearly Sh210 billion each year during the review period.

The Treasury has sounded the alarm about mounting pension liabilities, which, together with debt repayment costs, will cause President William Ruto’s administration nightmares over the next three years, beginning in July 2023.

The National Treasury’s Pensions Department expects to handle 85,400 claims during the review period, indicating the amount of public employees who will retire.

According to Treasury forecasts, 30,155 workers are likely to leave their jobs this fiscal year, which ends in June 2024, with the number falling to 28,745 the following year and 26,500 thereafter.

In three years, the pension bill for gratuity (paid in lump sum), ordinary pension (remitted monthly), and contribution to the public sector retirement system is expected to be Sh625.55 billion.

The Treasury has budgeted Sh189.09 billion for pension expenses in the current fiscal year, a figure that is expected to rise to Sh207.85 billion in the 2024/25 fiscal year and Sh228.61 billion in the fiscal year that follows.

Pension costs incurred as a result of mass retirements, which have also highlighted a job crisis in the aging civil service, have joined debt costs in denying the Ruto administration funding needed for critical projects such as roads, affordable housing units, and electricity transmission lines.

Treasury Cabinet Secretary Njuguna Ndung’u has already issued a warning about the growing pension bill, stating that it is a big risk to the budget.

“With an increasing number of retired officers, dependants, and an increased life expectancy rate, the pension wage bill has been rising exponentially, posing a fiscal risk,” Prof Ndung’u wrote in the 2023 Budget Policy Statement (BPS), a document that serves as the government’s spending guideline.

“To further mitigate fiscal risk, the government will ensure timely remittance of the required contribution to defined contribution schemes in order to reduce possible litigation costs and encourage appropriate investment choices.”

Cash payments for pensions, gratuities, and the Public Service Superannuation Scheme (PSSS) fell short of the objective by Sh36.28 billion in the fiscal year ended June.

This came after the Treasury disbursed Sh136.36 billion, which was 21.02 percent less than the fiscal year’s aim of Sh172.64 billion.

The pension amount disbursed was a rare Sh9.27 billion, or 6.37 percent, decrease from Sh145.63 the previous year, which marked the conclusion of President Uhuru Kenyatta’s maximum two-term reign of five years each.

The reduction in payment of retirement benefits and savings responsibilities, a first charge in government spending, came in the same year that Treasury scaled back the ongoing upgrading of the Pensions Management Information system, which aimed to automate and integrate all pension payroll systems.

The Treasury stated in June that it aimed to finish 60% of work on the new system by the end of the fiscal year, down from 70% previously.

“To effectively administer public service pensions, the National Treasury will invest in modern technology and digital solutions to streamline pension processes and improve service delivery,” Prof Ndung’u stated in the June 15 Budget Statement.

“In this regard, Public Service Schemes will develop user-friendly online platforms that will allow pensioners to access their pension statements, make inquiries, and update their personal information conveniently.”

The pensions department typically aims to process 600 files per week, with payment due in 21 days.

Currently, newly retired public officials from around the country are needed to physically bring validation documents to Nairobi for verification and clearance.

The pension payroll has risen in recent years as a result of a rapidly aging public sector, putting additional strain on taxpayers as a result of previous delays in implementing reforms.

Despite a hasty decision in 2009 to raise the retirement age from 55 to 60, the burden on taxpayers has remained high, owing in part to Treasury’s previous reluctance to enact critical reforms, such as a contributory plan.

Pension claims paid directly from the exchequer have risen from Sh25 billion in the fiscal year ending June 2009 to Sh189.09 billion in the current fiscal year ending June 2024.

The current budget is made up of Sh82.93 billion in ordinary pension, Sh73.85 billion in lump sum pay (commuted pension), and Sh28.46 billion in contributions to the public sector pension fund.

Unlike private-sector workers, civil servants did not contribute to their pension until January 2021, when their payments were provided directly from taxpayers.

This came after the Treasury implemented a contributing pension scheme in which public employees under the age of 45 paid 2% of their gross income to retirement savings in 2021, rising to 5% in 2022 and 7.5% this year.

The government contributes 15% of the gross wage of public sector employees.

By the end of June 2022, the PSSS scheme had 369,878 permanent and pensionable public personnel aged 45 and under.

Workers who quit from the public sector are entitled to pension payments after five years, with no age limitations, under the PSSS.

This is in contrast to the former arrangement, which required a worker to resign from the government for 10 years before receiving benefits or reaching the age of 50.

Civil officials are able to increase their payments above 7.5 percent of their income, but the government contribution stays unchanged.

The contributory retirement plan’s implementation, which had been delayed for more than eight years since the Public Service Superannuation Scheme (PSSS) Act became law, was supposed to relieve taxpayer burden.