Pay Cuts: Teachers, Civil Servants to take Pay Cuts Starting January to Pay for their Pension
In a nutshell;
Teachers, police, and other government employees will now start paying for their Pension.
This directive affects government employees who are below the age of 45.
The directive issued by CS Ukur Yattani is aimed at reducing the burden currently being borne by the exchequer.
Effective January, the aforementioned civil employees will take a mandatory pay cut, 7.5% of their salaries for their Pension just like workers in the private sector.
Over 530,000 civil servants, police and teachers included, will in January have their take-home pay cut by 7.5 percent for they will start contributing towards their pension savings scheme.
The employees, attached to various ministries and State agencies will hence see a portion of their salaries sliced for onward remittance to the Public Service Superannuation Scheme (PSSS), soon to be created.
Largest Pension Scheme
This means that State workers will cede about Sh2.4 billion monthly or Sh28 billion to the fund that will emerge as Kenya’s largest pension scheme.
Treasury Cabinet Secretary Ukur Yatani will on Wednesday set the stage for the setting up of PSSS—which will have a board and CEO— by announcing the January date when civil servants will start contributing to the fund.
Mr. Yatani said the move is aimed at reducing the pension burden currently borne in whole by the exchequer, especially in the Covid-19 era that has seen revenue sources depleted
Civil servants, unlike workers in the private sector, do not contribute to their pension, with their benefits paid straight from taxes.
The free benefits will increase the taxpayers’ pension burden to Sh121 billion in the year starting July from Sh15 billion in 2002.
Part of the pension burden has been attributed to the government’s failure to push through necessary reforms, including kick-starting the contributory pension scheme that was first mooted eight years ago.
“Membership to the scheme will be mandatory to all new entrants upon commencement of the Act and all employees aged below 45 as at the date,” said a Treasury brief on the fund.
“Employees aged 45 years and above will have an option to join the scheme by completing the Public Service Superannuation Scheme option form.”
Civil servants were initially to contribute two percent of their monthly salary to the scheme in the first year, five percent in the second, and 7.5 percent from the third year.
But the staggering has now been stopped, with workers expected to contribute the 7.5 percent of their pay in the first year, starting January.
The government will match the contributions with an amount equivalent to 15 percent of every workers’ monthly pay.
This will be equivalent to about Sh6.9 billion monthly contribution or Sh55.87 billion annually, turning pension expenditures to one of the largest budget items.
The Treasury is spending more to keep retired civil servants comfortable in retirement compared to health (Sh111 billion), water (Sh83.3 billion), and energy (Sh72 billion.)
The government had in 2017 timed the launch of the contributory pension scheme to coincide with a bumper review of public servants’ pay.
Civil servants’ basic pay increased by between 16 percent and 30 percent in a review that cost taxpayers Sh20 billion in the year starting July 2017, a rise that was expected to ease the pain of the pension contribution cut.
Past bids to slice a portion of the take-home pay for civil servants have been vigorously contested in the past, leading to delays in the implementation of the PSSS.
A 2009 actuarial study commissioned by the government found that there was a pension liability of Sh499 billion at the time owed to civil servants who have worked knowing the State would cater to the retirement costs.
The liability nearly doubled to Sh990 billion in 2014.
“Benefits accrued before joining the new scheme shall be recognized in the form of an amount acknowledged through the issuance of a letter recognizing accrued benefits at the date of joining the scheme under this Act,” said the Treasury brief.
Mr. Yatani’s move effectively activates commencement of the PSSS Act 2012 Act that was assented to on May 9, 2012, but was yet to be affected