Civil servants, teachers and security forces are having to re-organise their budgets after taking a two per cent cut on their January payslips.

The deductions will go towards financing the State workers’ newly introduced mandatory retirement savings plan, known as the Public Service Superannuation Scheme (PSSS). Retired public servants have been receiving lifetime pensions paid directly from the exchequer, but the new scheme will see them now shoulder a portion of the ballooning pension burden that hit Sh109 billion last year.

The public workers’ unions have for years resisted the contributory scheme, leaving taxpayers to shoulder the whole burden of keeping retired civil servants comfortable.

The PSSS Act was assented to on May 9, 2012, but it has never been effected even as the pension pay-outs increased sharply every year. Ticking time bomb The annual pension bill was expected to increase to Sh109 billion starting July from just Sh15 billion in 2002.

The retirement pay-outs are expected to rise to Sh153 billion by June 2022, a 20 per cent rise, reflecting the growing burden that has been described as a ticking time bomb.

Treasury Cabinet Secretary Ukur Yatani, in his national budget speech last year, announced that the PSSS would become operational in July 2020 but this did not happen. “There is potentially significant risks associated with sustainability of the pension scheme.

The government has not undertaken a full actuarial valuation of the future obligations of its non-contributory defined benefits pension fund scheme,” the IMF warned last year, citing a World Bank study that has estimated this obligation to be close to 30 per cent of GDP.

The Treasury only publishes the amount of money it sets aside to pay retired workers each year. The 2018 IMF Fiscal Monitor report had put the net present value of pension at Sh819 billion.

The two per cent deduction is a phased implementation of the scheme, and is expected to rise to five per cent next year and finally to 7.5 per cent in 2023 to make the transition to a contributory plan complete.

For female employees, the deduction will be a new thing as they have not been contributing to the Widows and Children’s Pension Scheme (WCPS), which their male counterparts do. For men, the WCPS has been discontinued and the amount they previously contributed converted into the PSSS.

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