EDITORIAL: State pension reforms must be done swiftly

Pension funding has been one of the main fiscal exposures for governments worldwide with Kenya being no exception. It will be recalled that counties like Greece have landed in economic meltdown, thanks in large part to this kind of liability.

To be sure, Kenya has tried to tackle this problem for years, with the multilateral donors pushing for action as the exposure exploded.

The main course of action here has been moving to a contributory scheme as opposed to a defined one where the government pays for everything. However, this has been proposed and postponed several times thanks in part to opposition from the civil servants.

But now Treasury Secretary Ukur Yatani says the public sector workers have to start paying 7.5 percent of their gross salary as pension contribution beginning May.

Assuming there will be no shift in the date, there are a number of reasons why we believe this measure is long overdue. The first has to do with huge fiscal deficit and wage bill the government has struggled to trim for years.

As far as pension liability goes, it is estimated to be teetering towards the Sh1 trillion mark, which the taxpayer is expected to foot. Second is the fact that civil servants—not the public—need to be responsible for their retirement welfare. When the government fully funds this, it means there is little flexibility in terms of how much you can access at old age.

Indeed, besides funding an equal amount to government contribution, the new scheme will allow the public servants to also top up with voluntary contributions. They will as well be allowed to monitor the management of the funds and ensure good yields.

The third and much overlooked factor is the fact that pension funds are ring fenced. Currently, a civil servant who is dismissed from the service goes home empty handed. This will change as not even the employer can touch contributions regulated by the Retirement Benefits Authority (RBA).

Finally, it is our hope RBA will quickly take charge and regulate the funds to the benefit of both the economy and the contributors.

Hopefully, the government will see the urgency of reforming its pension function to rescue the economy as well as the taxpayer from a looming time bomb.