Civil servants will be allowed to transfer pension benefits they receive from the Public Service Superannuation Fund (PSSF) to their chosen scheme when they opt out of the proposed changes to make the scheme portable.
The fund has proposed changes to the Public Service Superannuation Scheme Act by introducing a new clause allowing the transfer of pension savings account balances.
“Members who are out of public service can transfer their aggregate from their retirement savings account to another registered scheme,” the new amendment Bill said.
Currently, civil servants in the scheme cannot transfer their benefits to others when they leave public service, making the fund inactive.
Members transferred in the public sector, however, are allowed to maintain the same retirement savings account.
The proposed changes seek to align the PSSF with the National Pension Benefits Policy, which encourages the portability of pension benefit schemes to credit members moving between the public and private sectors.
“The key objectives of the policy include portability; facilitating the transfer of pension benefits between schemes and across borders to accommodate individual mobility,” the Pension Benefits Authority (RBA) said.
The PSSF mainly invests in government securities in a strategy adopted to ensure a return on the investment.
The fund’s investment in the period up to June 2023 includes Sh71.5 billion in Treasury bonds, Sh6.3 billion in Treasury bills and Sh904.1 million in cash and cash equivalents, with the balance representing receivables and prepayments.
During the period, the fund recorded a net investment return of Sh5.5 billion, down from Sh2.9 billion previously, with most of its revenue stream coming from interest income from Treasury bonds.
The fund’s government securities bias still results in revaluation losses due to declining bond prices in the secondary market. PSSF realized a paper loss of Sh2.1 billion in the two financial years to June 2023. Its conservative investment stance is despite the pension scheme being allowed to invest in other asset classes, including equities, immovable properties, guaranteed funds, corporate bonds and private equity.
The PSSF was born from the conversion of all defined benefit schemes in the public sector to defined contribution schemes by 2021 with the aim of aligning public service pension schemes with best practice in the pension benefits industry.
PSSF members, which include employees of the Teachers Service Commission (TSC), National Police Service (NPS) and National Youth Service (NYS), contribute 7.5 percent of their gross salary to the fund, while employers match remittances with a 15 percent contribution. gross salary.
In the year ending June 2023, the fund contributed a total of Sh37 billion from the previous Sh42 billion. The marginal decrease is attributed to the normalization of the financial period. The fund’s membership increased from 368,795 in June 2022 to 416,449 in June 2023 while its value reached Sh84.7 billion at the end of the period.
Fund members will access benefits in accordance with the Pension Benefits Act in further amendments where the RBA limits benefit access to no more than 50 percent when employees leave employment before reaching retirement age.
In addition, employers will face a penalty calculated at the latest rate of return of the scheme for failing to reduce members’ contributions to the fund. In the year ending June 2023, the employer/government has failed to remit Sh219.9 million to the fund, exposing a risk in the recently established pension scheme.
Civil servants under the age of 45 automatically join the scheme from January 2021, while those over 45 have the option to remain in a defined benefit pension scheme where only the government or employer contributes.
Membership in the next PSSF is expected to grow as the old public officials exit the stage, bringing all civil servants under the scope of the new scheme.
The PSSF has become the second largest pension scheme in the country, second only to the National Social Security Fund by asset value.
