Kenya’s pension bill rose by Sh10 billion to a record high in the financial year ended June 30, 2023, highlighting the growing burden on the Exchequer as more workers exited public service.
Treasury disclosures show that payments towards pension and gratuity payments to retirees hit Sh148.94 billion in the year to June, a jump from the Sh138.35 billion used a year earlier.
The rise in the bill highlights the growing burden of settling payments for thousands of Kenyans who are exiting the public service upon attainment of the retirement age of 60 years.
For example, in the first half of the year that ended last month, the Treasury did not remit pensions for civil servants amid the struggles exacerbated by the high debt servicing obligations.
Expenditure on gratuities is anticipated to grow higher in the current financial year as the National Treasury implements a presidential directive to immediately retire all public workers who have attained 60 years as part of a plan to lower the wage bill pressure.
Budget documents tabled in the National Assembly show that the Treasury is seeking approval from lawmakers to increase the pension bill to Sh223.15 billion this financial year ending June 2025, from an initial estimate of Sh199.37 billion to implement the directive by President Ruto. This would mean an additional Sh23.78 billion is required to clear workers above 60 from the public service in the 2024/25 fiscal year.
The Treasury is looking for an extra Sh15.55 billion to pay off gratuity expenses (paid in a lump sum), raising the budget to Sh85.76 billion, while ordinary pension (remitted monthly) is set to rise from Sh5.66 billion to Sh93.78 billion.
The remainder of Sh2.56 billion additional cash will go into the Public Service Superannuation Scheme(PSSS), raising the government’s projected contribution to the scheme in the current fiscal year to nearly Sh36.98 billion.
Under the PSSS, government workers contribute 7.5 percent of their gross pay while the government contributes 15 percent of the gross pay of the employees.
The scheme was introduced in 2021 as a move to ease pressure on the Exchequer. At launch of the PSSSS, civil servants contributed two percent of their gross pay. The contribution rate was increased to five percent in 2022 and then 7.5 percent from last year.
Gratuity–a sum of money paid to an employee at the end of a period of employment–will take up more than half (57.52 percent), or nearly Sh13.68 billion, of the additional funding, while the lump sum dues to the retiring military staff are set to increase by Sh1.88 billion.
The monthly pension bill for civil service has been increased from Sh4.97 billion to Sh64.54 billion, while the military’s is up by Sh6690.65 million to Sh13.13 billion.
