Treasury picks 3 banks to hold pension funds, assets
More than 800,000 civil servants, including police officers and teachers, can now breathe easy after the National Treasury began the implementation of an improved public sector pension scheme effective January 1 this year.
Civil servants started contributing to their pension savings scheme with the first 7.5 per cent deductions from their monthly pay in January.
To avoid crisis in the government’s finances as a result of growing retirement obligations, National Treasury has moved to appoint three banks as custodians of the more than Sh31.2 billion in annual pension contributions expected from public servants following the rollout.
Picked to ensure safe custody of the money as well as the interest to be earned are NCBA, Stanbic and Co-op Bank.
The three financial instutions will be expected to hold pension funds and assets in safe custody on trust for the hundreds of thousands of government workers and beneficiaries of the retirement savings account.
The Public Service Superannuation Scheme (PSSS) Act of 2012 – annual pension contributions by public servants, promises to among other things prevent pension liability crisis which would threaten the livelihoods of future retirees.
Prior to its enactment and subsequent gazettement in August 2020, the civil service had been running an unfunded pension scheme, which has been increasing over the years.
CPF Financial Services Ltd will be the fund administrator for the PSSS, which has initially admitted 350,000 members with a combined employer and employee monthly contribution worth Sh2.6 billion.
That figure is, however, expected to rise owing to the colossal number of civil servants still left out of the scheme.
Kenya has an estimated 865,200 public servants gobbling more than Sh800 billion wage bill, having risen from Sh458 billion in 2013.
While announcing the changes in the country’s pension system, Head of Public Service Joseph Kinyua said “PSSS’ or “Scheme” would commence on January 1, 2021 as appointed through Legal Notice No. 156 published in the Kenya Gazette Supplement of 12th August, 2020.
“Subsequently, the current scheme will be closed to new entrants and the accrued benefits for those who join the new scheme will be calculated and paid into the scheme,” he said in a circular signed released last year.
As more employees retire from civil service, pension liability was always expected to rise to unsustainable levels, largely due to the existence of non-contributory pension schemes in the public service, salary reviews and increased recruitment.
Pension cost at the current level crowds out the country’s spending on other key areas, such as health and education.