Public servants will be allowed to transfer accrued pension benefits from the Public Service Superannuation Fund (PSSF) to a plan of their choice upon their exit in proposed changes that seek to make the scheme portable.
The fund has proposed changes to the Public Service Superannuation Scheme Act by introducing a new clause allowing the transfer of the balance of the retirement savings account.
“A member who exits public service may transfer the aggregate of the retirement savings accounts to another registered scheme,” says the new amendment Bill.
Currently, public servants in the scheme cannot transfer their benefits to another upon their exit from public service, rendering the fund immobile.
Members who are transferred within the public sector are, however, allowed to maintain the same retirement savings account.
The proposed changes seek to align the PSSF with the National Retirement Benefits Policy, which advocates the portability of retirement benefits scheme to the credit of members who move in between the public and private sectors.
“The key objectives of the policy include portability; facilitating the transfer of retirement benefits between schemes and across borders to accommodate individuals’ mobility,” the Retirement Benefits Authority (RBA) notes.
The PSSF primarily invests in government securities in a strategy adopted to guarantee returns on the investments.
The fund’s investments in the period to June 2023 included Sh71.5 billion in Treasury bonds, Sh6.3 billion in Treasury bills and Sh904.1 million in cash and cash equivalents, with the balance representing receivables and prepayments.
During the period, the fund recorded a net investment return of Sh5.5 billion, down from Sh2.9 billion previously, with the bulk of the revenue streaming from interest income from Treasury bonds.
The fund’s government securities bias has nevertheless exposed it to revaluation losses due to falling bond prices in the secondary market. The PSSF realised Sh2.1 billion paper losses across the two financial years to June 2023. Its conservative investment stance is despite pension schemes being allowed to invest in other asset classes, including equities, immovable properties, guaranteed funds, corporate bonds and private equity.
The PSSF was born out of the conversion of all defined benefit schemes in the public sector to defined contributory schemes in 2021 with the view of aligning public service pension schemes with best practices in the retirement benefits industry.
PSSF members, who include employees of the Teachers Service Commission (TSC), the National Police Service (NPS) and the National Youth Service (NYS), contribute 7.5 percent of their gross salaries to the fund, while the employer matches the remittance with a 15 percent gross salary contribution.
In the year ended June 2023, the fund marked Sh37 billion in total contributions from Sh42 billion previously. The marginal decline was attributed to the normalisation of the financial period. The fund’s membership grew from 368,795 in June 2022 to 416,449 in June 2023 while its value hit Sh84.7 billion at the end of the period.
Members of the fund will access benefits in accordance with the Retirement Benefits Act in further amendments where the RBA limits the access of benefits to no more than 50 percent when an employee leaves employment before attaining the retirement age.
Employers will, in addition, face penalties calculated at the most recent rate of return of the scheme on failure to deduct members’ contributions to the fund. In the year ending June 2023, employers/government had failed to remit Sh219.9 million to the fund, revealing the risks in the recently established pension scheme.
Public servants in service below 45 years of age automatically joined the scheme from January 2021 while those aged above 45 had the option of remaining in the old defined benefit pension scheme under which only the government or the employer made contributions.
Membership to the PSSF is subsequently expected to grow as older public servants exit the stage, bringing all public servants under the scope of the new scheme.
The PSSF is already the second largest pension scheme in the country, dwarfed only by the National Social Security Fund by asset value.
