Treasury Cabinet Secretary John Mbadi is setting up a team to verify claims that an estimated Sh90.3 billion pension savings for county staff had not been remitted to manager schemes.
The Retirement Benefits Authority (RBA), the industry regulator, said the accumulated funds had been deducted from the workers’ payslips in the devolved units as of March 2024, but had not been remitted to the pension trusts.
The data from the RBA, however, contradicts a report from the Council of Governors to the Senate, which puts the arrears at Sh40.5 billion as at March 2023.
The discrepancy of Sh49.5 billion prompted the Senate Select Committee on County Public Investments and Special Funds, led by Godfrey Osotsi (Vihiga), to direct the Treasury to investigate the true position of the accumulated bills.
“Owing to the discrepancies in the figures, the Senate directed that a taskforce be established to scrutinise the pension liabilities and propose a roadmap for settling the amounts,” Mr Mbadi’s office wrote in the draft 2024 Budget Review and Outlook Paper.
“The National Treasury is in the process of constituting the taskforce, which is expected to complete the verification process within 90 days once gazetted” the CS added.
The announcement came ahead of the planned release of an interim report by the Pending Bills Verification Committee, led by former Auditor-General Edward Ouko, next month.
If the non-remitted pension arrears as captured by RBA are confirmed, they will account for about half of the pending bills at the counties.
Counties reported pending bills of Sh181.98 billion as at June 30, 2024, consisting of Sh179.87 billion for county executives and Sh2.11 billion for the county assemblies.
The Treasury is banking on a shift to accrual basis accounting from a cash basis criterion in a bid to significantly reduce the pending bills.
Accrual accounting records revenue and expenses when transactions occur before the money is received and dispensed, while the cash basis method records income and expenses when cash is received or disbursed.
CPF Financial Services, the county pension fund administrator, has in the past threatened to auction assets of the devolved units to recover the unremitted contributions.
Local Authorities Pensions Trust (Laptrust) board chairperson Winfred Mbai said the debt collectors the entity hired to recover arrears have inked deals with three main debtors – Nairobi County, Mombasa County, and the Nairobi Water & Sewerage Company – to “periodically make remittances to reduce the outstanding debt”.
“An audit of assets and liabilities of the former municipalities and county councils was completed and debt owed to the scheme was captured and consideration is to explore ways of liquidating the debt,” Ms Mbai wrote in the latest annual report for 2023.
“The board has engaged inter-governmental agencies, the Controller of Budget, the Treasury, and the Parliament on possible mechanisms to enable recovery of the debt at the source. The trustees have also engaged the regulator in view of the implementation of the new regulations on unpaid contributions.”
The arrears, which date back to the years of municipal and county councils before transitioning to the county system in 2013, add to the piling pending bills for the devolved units as a result of payslip deductions that were not wired.
This includes Sacco contributions and pay-as-you-earn deductions to KRA.
The deductions not remitted to the Saccos, for instance, were estimated at Sh865.12 million last year, a significant 35.81 percent drop from nearly Sh1.35 billion in 2022.
“[The non-remitted funds] is significant enough to have negative financial impairment of the liquidity of the 10 county government-based regulated Saccos, which draw a majority of their membership from county governments and assemblies,” Sacco Societies Regulatory Authority (Sasra) wrote in its annual report on September 11.
