Civil Servants to Pay 7.5% of Salary for a Pension Plan

Kevin Namunwa | Aug 4, 2020

Over half a million civil servants, including police and teachers, will from January take a 7.5% pay cut as they start contributing to their pension savings scheme.

The employees will see a portion of their salaries sliced for onward remittance to the soon to be created Public Service Superannuation Scheme (PSSS).

Civil servants, unlike workers in the private sector, do not contribute to their pension, with their benefits paid straight from taxes.

Treasury CS Ukur Yatani will on Wednesday set the stage for the setting up of PSSS, which will have a board and CEO, by announcing the January date when civil servants will start contributing to the fund.

The free benefits will increase the taxpayers’ pension burden to Sh121 billion in the year starting July from Sh15 billion in 2002. This means that State workers will cede about Sh2.4 billion monthly or Sh28 billion to the fund that will emerge as Kenya’s largest pension scheme.

The civil servants were initially to contribute 2% of their monthly salary to the scheme in the first year, 5% in the second, and 7.5% from the third year. However, the staggering has now been stopped, with workers expected to contribute the 7.5% of their pay in the first year, starting January.

The government will match the contributions with an amount equivalent to 15% of every workers’ monthly pay.

This will be equivalent to about Sh6.9 billion monthly contribution or Sh55.87 billion annually, turning pension expenditures to one of the largest budget items.

The Treasury is spending more to keep retired civil servants comfortable in retirement compared to health (Sh111 billion), water (Sh83.3 billion), and energy (Sh72 billion.)

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