Taxpayers will spend an additional Sh23.78 billion to pay civil servants who retire after the age of 60 in line with a presidential directive aimed at reducing the growth in the wage bill.
Budget documents tabled in the National Assembly show that the Treasury has sought approval from lawmakers to increase the pension bill to Sh223.15 billion in the financial year ending June 2025, from an initial estimate of Sh199.37 billion.
The Treasury is seeking an additional Sh15.55 billion to cover gratuity costs (paid in lump sum), increasing the budget to Sh85.76 billion, while regular pensions (paid monthly) are set to rise from Sh5.66 billion to Sh93 .78 billion.
The remainder of the Sh2.56 billion additional cash will go to the Public Service Superannuation Scheme (PSSS), raising the government’s contribution to the scheme in the current fiscal year to nearly Sh36.98 billion.
Gratuity—the amount of money paid to employees at the end of their employment period—will take up more than half (57.52 per cent), or almost Sh13.68 billion, of the additional funding. Lump sum dues for retired military staff will add up to Sh1.88 billion.
The monthly pension bill for the civil service has increased from Sh4.97 billion to Sh64.54 billion, while the military rose by Sh6690.65 million to Sh13.13 billion.
Pension budgets for widows and children, dependents, and injury costs for the military are unchanged.
Workers in the public service must retire at 60, except for the disabled who retire at 65 and university lecturers at 70.
The exact number affected by Dr Ruto’s directive has not been disclosed, but the latest disclosures indicate more than 5,000 workers.
The latest report from the Public Service Commission shows that about 4,547 public service workers will be over 60 years old in June 2023, while another 25,879 are between 56 and 60.
Over the years, the government has retained some of its workforce in senior management and technical expertise on salaries beyond the age of 60 to train and train juniors and prevent skills shortages in the aging public service.
Dr Ruto’s directive has disrupted this decades-old practice, and Treasury has diverted money to facilitate a smooth transition.
The ongoing youth-led demonstrations against tax hikes, higher cost of living and bad governance led to Dr Ruto withdrawing the Finance Bill 2024, opening a Sh346 billion budget hole, which forced the government to make a raft of spending cuts.
As part of the austerities, the President also chose to leave the old officials of the public service to appease the dominant, relentlessly young population affected by high unemployment.
“Currently, civil servants who have reached the retirement age of 60 must retire immediately,” Dr Ruto said on July 5.
“He was directed to do this without an extension to his tenure.”
Before the President’s directive, about 85,400 public service workers were expected to retire in the three fiscal years ending June 2026, according to the Department of Pensions at the Treasury.
This includes 30,155 workers in the fiscal year just ended, 28,745 in the fiscal year ending June 2025, and 26,500 in the following year.
Job crisis
That number is now on the rise, with workers, mostly those with technical skills and specialized expertise whose jobs have been expanded, now expected to leave the public service.
The rising cost of pension bills, triggered by mass retirements, has led to a job crisis in the aging civil service amid the suspension of new recruitment pending the completion of a planned audit and clearing of public salaries and pension bills to “eliminate the ghost. workers”.
Pension bill pressure continues to be heaped on taxpayers following the knee-jerk decision in 2009 to raise the pension age from 55 to 60, partly due to the Treasury’s past failure to push through much-needed reforms, including the launch of a contributory pension scheme.
This has resulted in pension claims, paid directly from the Exchequer, rising from Sh25 billion in the financial year ending June 2009 to Sh223.15 billion for the current year ending June 2025.
Civil servants, unlike workers in the private sector, do not contribute to pensions until January 2021, when benefits are paid directly from taxes.
This changed after the Treasury launched a contributory pension scheme – PSSS – where public service workers under the age of 45 will initially contribute two per cent of their gross salary to pension savings in 2021, rising to five per cent in 2022 and 7.5 per cent from last year.
The government contributes 15 percent of the gross salary of public service workers.
This comes on the back of the Treasury announcing earlier this year that the cash-strapped state-owned entity did not remit nearly Sh42.06 billion in employer contributions by the end of the financial year ending June 2023.
The simmering pension crisis, the Treasury said in its 2024 Budget Policy Statement, poses “a major challenge to the social security of pensioners who can retire without a pension”.
Unpaid employer pension contributions are listed as the second biggest bill for parastatals after arrears to suppliers of goods and services and project contractors.
“The Pension Allowance Regulation requires that pension contributions be sent to the custodian or guaranteed fund within ten days of each calendar month,” said the Treasury in BPS 2024 which provides a ceiling on expenditure for public entities for this financial year.
“According to the Pension Benefits Authority, as at June 30, 2023, the outstanding public sector scheme contribution is about Sh40.8 billion, excluding penalties and interest applicable to late remittances.”
Late remittance of pension deductions is penalized in Kenya at the rate of five percent of the outstanding monthly amount, the amount remaining unpaid.
