IMF warns of Kenya’s pensions time bomb
The International Monetary Fund (IMF) has warned of a ticking time bomb in Kenya’s pension sector as the gap between retirement dues and actual savings continues to grow wider.
Kenya, which in 2009 opted to delay the implosion by raising the retirement age for civil servants from 55 to 60, is now facing pension obligations that have ballooned to Sh2.6 trillion — about 30 percent of GDP. This is much higher than what Kenyans pay as taxes. The country’s tax collection aggregate currently stands at 15.6 percent of GDP.
The cost of settling pensions has risen 600 per cent in the last 15 years with an estimated 20,000 civil servants projected to retire every year. Pension, which is paid from tax collections, rose from Sh86 billion in 2018 to Sh104 billion in 2019.
“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 Bretton Woods lender adds, citing a World Bank study that has estimated this obligation to be close to 30 percent of GDP.
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