Over 500,000 civil servants will contribute 7.5 per cent of their pay to the new Pension Savings Scheme, which was introduced on Wednesday by Treasury Cabinet Secretary (CS) Ukur Yatani.
Among those who will contribute to the new pension scheme launched to reduce the burden shouldered by the Exchequer are teachers, police officers and prison warders.
Records on the current service pension scheme indicate there are 375,000 teachers, 128,000 police and prison staff, more than 270,000 pensioners and 75,000 dependants.
The Treasury CS said that upon commencement of the contributory scheme, the current Public Service Pension arrangement will be closed to all new employees and all serving employees below 45 years as at January 1, 2021.
“Employees aged 45 years and above as at that date will be given an option to join the new scheme or remain in the old one. It’s important to note that there will be over 333,460 public servants who will be below the age of 45 Years as at January 1, 2021,” CS Yatani said.
Under the new scheme, monthly contributions by employees of up to 30 per cent of their basic salary or Sh20,000 whichever is lower will be tax-deductible.
This means that the contribution is deducted from the salary before tax is calculated. In effect, it reduces the tax level and improves the pay of an employee as well as avoiding double taxation of pension contributions and payouts.
“Employees attached to ministries and other state agencies will also suffer a pay cut for onward remittance in the newly created Public Service Superannuation Scheme,” the CS said.
The introduction of the new scheme will see civil servants cede close to Sh28 billion yearly to the scheme, which will be the largest in the country.
Yatani also said membership to the scheme will be mandatory to all new entrants upon commencement of the Act.
He said the move taken by the State is aimed at reducing the pension burden shouldered by the Exchequer.
Under the current pension scheme, civil servants, unlike workers in the private sector, do not contribute to their pension and their benefits are paid from taxes.
According to the Treasury mandarin,mthe free benefits will increase the taxpayers’ pension burden to Sh121 billion in the year starting July from Sh15 billion in 2002.
Past government efforts to introduce a pay cut for civil servants to fund pension schemes have been contested leading to the delays in its implementation.
But the CS said that plans were underway to have all civil servants registered biometrically.
The Institutional Framework of the Scheme comprises the Public Service Superannuation Fund and the Board of Trustees. The board, which draws membership from both the employer and the workers’ unions, is charged with the responsibility of operating and managing the fund.
Yatani disclosed that all contributions will be paid into the Fund and conversely, all the benefits and any other payments required under the provisions of the Act shall be paid out of the Fund.
In 2010, the National Treasury issued a policy circular that largely set in motion the trend towards the harmonisation of pension policies for public sector workers, with the introduction of some pre-funding or fully funded complementary pension schemes.