Contributory pensions introduced for civil servants in Kenya and the Bahamas

By on 06/07/2018
Henry Kiplagat Rotich, cabinet secretary, The National Treasury, Kenya.

Governments in Kenya and the Bahamas have introduced contributory pension schemes for civil servants.

In Kenya, civil servants, teachers and members of the armed forces will pay 7.5% of their gross salary towards their retirement from January 2019.

The government has wanted to introduce contributory pensions for many years, but has finally made the move in response to a condition set by the International Monetary Fund (IMF) to cut back its spending and increase tax revenues.

Contributions for cash

The change will help Kenya access a US$1.5 billion standby credit facility from the IMF, according to local news website Kenyans.co.ke.

The government will contribute 15% of gross salary to the workers’ pension pots. The implementation of the new scheme was expected to begin this September, but has been delayed by four months.

In his address to the Kenyan parliament, Treasury cabinet secretary Henry Rotich predicted that the scheme will be able to raise double the amount paid into it. “The government has allocated Ksh15.3 billion [US$150m] to the scheme in 2018/19, projected to rise to Ksh33.8 billion [US$340m] over the medium term,” he added.

Caribbean costs

Meanwhile, in the Bahamas, pensions will be contributory for newly hired civil servants. The state’s prime minister Hubert Minnis announced the decision in his 2018/19 budget speech, though details of when the change will come into effect have yet to be published.

Minnis said that the reform will bring the Bahamas into line with the practice of many countries, and is necessary to address a large pension shortfall. The government’s unfunded public sector pension liabilities are projected to hit US$3.7bn by 2030, according to local news website tribune242.com.

Robert Myers, principal of the Organisation for Responsible Governance, told the website: “It’s a good step, but the 50,000 pound gorilla is the existing pension liabilities. That has to be addressed. The new hires aren’t going to affect the big numbers.”

Existing civil servants have no cap on their pension liability and make no contribution. “That is just unsustainable. The reality of the matter is that when it comes time to pay the money, it won’t be there,” he added.

The Bahamas Public Services Union’s (BPSU) president, Kingsley Ferguson, told the website that it is not concerned about the move since it only affects new employees.

About Catherine Early

Catherine Early is a journalist and editor specialising in government policy and regulation. She writes predominantly about environmental issues and has worked for the Environmentalist, the ENDS Report, Planning magazine and Windpower Monthly, and also written for the Guardian, the Ecologist and China Dialogue.

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