STATEMENT BY HON. (AMB.
) UKUR YATANI, EGH, CABINET
SECRETARY, THE NATIONAL TREASURY & PLANNING
DURING THE PRESS BRIEFING ON THE PUBLIC SERVICE
SUPERANNUATION SCHEME.
Wednesday, 5th August, 2020
The Head of the Public Service, Dr. Joseph Kinyua, EGH
The CS, Public Service & Gender Affairs: Prof. M.Kobia, EGH
The Chairman, COG, H. E. Wycliffe A. Oparanya, EGH, CGJ
The CAS, NT & P –Hon. Nelson Gaichuhie,
The PS, National Treasury - Dr. Julius Muia
The Principal Secretary/Planning - Mr. Saitoti Torome
The PS, State Department for Public Service - Mary Kimonye
The Chairperson PSC – Mr. Stephen Kirogo
The Chairperson, SRC – Ms Lyn Mengich
The Chairperson TSC – Dr. Lydiah Nzomo
The Chairperson NPS – Mr. Eliud Kinuthia
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The Chairperson, RBA– Mr. Victor Pratt
Chairpersons of Trade Unions
CEOs of State Agencies
Stakeholders of the Pensions Industry in Kenya
Senior Government officials
Ladies and Gentlemen
Allow me to warmly welcome you to this important ceremony
from wherever you are. I am fully aware of the unique and extra-
ordinary circumstance that has necessitated participants taking
this meeting virtually. Indeed, the now ‘new normal’ situation
dictated by the COVID-19 pandemic behooves on us to adjust our
work orientations in order to keep the economy running while
preserving health and the lives of staff as well as the general
public. As a rallying call, we must all be reminded of our
responsibilities irrespective of our status in the society to play our
role as patriotic Kenyans to continuously remind each other of the
requirements in containing the spread of the disease. At the
National Treasury we are committed in observing all the
guidelines and measures recommended by the Health Authorities.
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In my speech during the Budget Statement for the current
Financial Year 2020/2021, I addressed myself to some of the key
reforms that constitute the transformational Government agenda
during the period. One area of focus is in the public sector
retirement benefits, which indeed, the government had as early
as 2001 identified the need for structural and policy reforms in
the pensions industry. A key component of the pension reforms
was the proposed introduction of a contributory pension scheme
for the public service to replace the Defined Benefit ‘Pay-as-you-
go’ arrangement that continues to date.
The proposal for the contributory scheme was passed by the
Cabinet in 2003. At this time there was growing concern that the
pension wage bill had continued to rise making it unsustainable in
the future. An actuarial study conducted in 2004 had found that
the pension liability had reached Ksh 271.2 billion representing
a 25% of the GDP at the time. A later study conducted in the Year
2013 established that the pension liability was almost hitting 1
trillion mark and getting out of control. To rescue what had
become an imminent time bomb, the delayed pension reforms
particularly the adoption of a contributory pension was considered
the only option available to the Government.
During the recent National Wage Bill Conference held in
November last year under the auspices of the Salaries
Remuneration Commission (SRC), the cost of the pension liability
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was laid bare. The pension wage bill that rose from Kshs. 27.9
billion in the Financial Year 2013/14 to Kshs 86.7 billion in
2019/2020 is projected to cross the Kshs. 100 billion mark in
the current Financial Year 2020/21. It is clear that this situation
cannot wait any longer, therefore giving urgency for the roll-out of
the Contributory Scheme.
Ladies and Gentlemen
You will recall that on 24th November 2010 the National Treasury
issued a policy circular that largely set in motion the trend
towards the harmonization of pension policies for public sector
workers, with the introduction of some pre-funding or fully funded
complementary pension schemes. This process has been driven
mainly by the necessity to alleviate the fiscal burden imposed by
relatively generous public employees’ pension schemes,
enhanced labour mobility and the desire to build more equitable
and financially sustainable social security systems.
Building on this policy position and reflective of previous
attempts of reforming the public pension sector, the Public
Service Superannuation Scheme Act, 2012, was assented to on
9th May 2012. The Act established the contributory Public
Service Superannuation Scheme (PSSS) to provide
retirement benefits to public servants. The law requires that the
Cabinet Secretary appoints and gazettes the commencement
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date of the scheme. Despite numerous challenges that has
occasioned the delay, I have now gazetted the 1st January,
2021 as the commencement date of the Act.
I have also constituted the Board of Trustees that will be chaired
by Dr. Edward Odundo, a leading authority in the Pensions
Industry. I beseech all actors in the Public Service to render
support to the Board and the staff for a smooth implementation
of the scheme.
Ladies and Gentlemen
The scheme we are rolling out covers all employees of the Public
Service who are recruited through:
the Public Service Commission;
the Teachers Service Commission;
the National Police Service Commission; or
any other service that the Cabinet Secretary determines
to be public service for the purposes of the Act.
Upon commencement of the contributory scheme, the current
Public Service Pension arrangement will be closed to all new
employees and all serving employees who will be aged below 45
years as at 1st January, 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 Scheme. It’s important to note that
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there will be over 333,460 public servants who will be below the
age of 45 Years as at 1st July this year:
The Institutional Framework of the Scheme comprises of 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. All
contributions shall 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. The operations of the
Scheme shall be in accordance with the Retirement Benefits Act.
This scheme is portable and allows employees to transfer their
services to other employers without losing their pension benefits.
Employees who for any reason exit Government service before
the retirement date, will be allowed to access their own
accumulated contributions and a further 50% of the Government
portion on leaving service.
Under the new scheme, monthly contributions by employees of
up to 30% of their basic salary or Kshs. 20,000 whichever is lower
will be tax deductible. This means that the contribution is
deducted from the salary before tax is calculated. This in effect
reduces the tax level and improves the pay of an employee as
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well as avoiding double taxation of pension contributions and
pension payouts.
The new scheme ensures involvement of the employees and
members in the management of their retirement fund through
participation in the Board of Trustees in accordance with the
Retirement Benefits Authority. This in essence enhances a sense
of ownership and oversight of the management of the fund.
Ladies and Gentlemen,
In conclusion, The Public Service Superannuation Scheme Fund
will no doubt become the largest fund in the country. The fund
will generate growth of Capital Markets and bring meaningful
growth in unlocking value in real estate. You will agree with me
that the expected fund income of over Ksh. 3bn monthly
presents resources that will not only stimulate the economy that
has been negatively affected by the Covid pandemic, but will also
support the big four agenda.
In the medium and long term periods, the resources that have
been directed to the Defined Benefit arrangement will be freed to
finance the development of other critical sectors of the economy.
More significantly, under the contributory arrangement the
investment income realized will allow for retirement benefits
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improvement that will guarantee adequate monthly income and
financial security in old age.
As I thank all those involved in the preparation of this launch, I
once again appeal to relevant stakeholders to support this
important scheme.
I thank you.
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