Kenya’s Civil Service Pension Needs Review
Fred Nyayieka, www.allafrica.com
August 6, 2007
It is often recognized that Kenya —
like many other developing countries — has a huge debt. The public debt,
especially the domestic aspect of it, is very high relative to GDP. But
policy makers give inadequate attention to the issue of pensions.
What is lost to policy makers is the pension burden that future
generations will have to shoulder. Successive regimes at Treasury have
not deemed it fit to fix this problem. Here is the genesis of the
All permanent and pensionable civil servants participate in the Civil
Service Pension Scheme established under the Pensions Act (Cap 189) of
the Laws of Kenya. Civil servants who joined service from 1971 also
participate in the Widows and Children’s Pension Scheme established
under the Widow’s and Children’s Pensions Act (Cap 195). Pensions are
guaranteed increases under the Pensions (Increase) Act (Cap 190).
The Civil Service Pension Scheme is a non-contributory defined benefit
scheme. The scheme is not funded and no assets have been set aside or
invested. Pension benefits are paid out of the Consolidated Fund from
Pension under the Civil Service Pension Scheme is accrued at 1/480 times
number of months in service multiplied by the annual basic salary.
Members are eligible for pension after a minimum of 10 year’s service.
In July 2006, the government attempted to introduce contributions by the
members without identifying the key considerations and practice in
current pension arrangements. That led to deferring of the decision and
the scheme remains non-contributory and unfunded.
The world over, it has lately been typical for governments to review
retirement benefits arrangements for their employees. Governments with
unfunded retirement arrangements are finding their pension liabilities
unsustainable and are opting for more radical reforms.
The rationale for introducing a contributory scheme for civil servants
in Kenya was largely driven by the realisation that the pension
liability is set to rise to unsustainable levels.
IN ORDER to guarantee the pension benefits promised and further protect
the interests of civil servants, the government requires a completely
different funding setup, coupled with a strict set of competencies that
enables it to take charge of uncertainties in pension liability.
The need for a new setup is driven by two main factors. First, the
government’s acceptance that funding pensions from the exchequer is
inadequate and unsustainable in the long run and secondly, the
realisation that a well-managed funded scheme is imperative for enhanced
mobilisation of long-term economic independence.
A fund provides a perfect solution to this problem by enabling the
creation of a significant pool of long-term resources that can be
invested. These resources can be deployed into investments that enhance
the returns that funds obtain and so relieve the government from direct
funding of past pension liabilities.
It is in the best interests of both the government and civil servants
that a comprehensive review of the pension provisions be considered and
civil servants contribute to a new scheme.
The government should consider coming up with a draft Bill on a new
pension arrangement for discussion with stakeholders before
implementation. The Pensions Act should be amended to incorporate the
ON INVESTMENTS, should members be required to make contributions from
their own salaries, as they will be then stakeholders. The government
should come up with a management structure that guarantees civil
servants a market return on their contributions. A broad policy on
investments should be integrated into the new law.
One of the major challenges at the moment is administration of the Civil
Service Pension Scheme. The Office of Director of Pensions is currently
ill equipped to handle the magnitude of administrative work. It should
be delinked from the government and made into an autonomous corporate
Currently, contributions are credited and benefits debited to the
Consolidated Fund. If the practice is to remain, then it negates the
purpose of reviewing the current system as mere accruals in financial
estimates will only compound the problem of unsustainability. This calls
for segregation of pension assets and safe custody of those assets by a
separate corporate entity.
ANY INTRODUCTION of an umbrella contributory scheme for all civil
servants will create a massive scheme with all the challenges this
entails for its management. In order to safeguard the interests of
the government and civil servants, there is a need to establish three
separate schemes, one each for mainstream civil servants, teachers and
the disciplined forces respectively.
A review of the current pension arrangement for civil servants is a
complex matter that requires comprehensive consultation and independent
professional input. A review would reveal considerable savings on the
part of the government after restructuring the current pension
arrangement, taking into consideration civil servants’ unique needs.
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