Supreme Court rules public pension schemes don't have to follow government procurement rules

The Supreme Court of Kenya ruled that public pension schemes are private trusts and exempt from government procurement rules. (Photo: X/The Judiciary Kenya)

By Carolyne Kubwa
Monday, July 6, 2026

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The apex court ruled that pension schemes sponsored by public institutions are private trusts, not public entities, and are therefore not bound by government procurement rules.

The Supreme Court has ruled that pension schemes sponsored by public institutions are not public entities for government procurement, declaring unconstitutional a provision of the Public Procurement and Asset Disposal Act (PPADA) that required them to follow State procurement procedures.

In a judgment delivered on May 15, 2026, the apex court allowed an appeal by the Association of Retirement Benefits Schemes (ARBS), overturning earlier decisions by the High Court and the Court of Appeal.

The judges declared Section 2(o) of the Public Procurement and Asset Disposal Act unconstitutional to the extent that it classifies pension schemes established by public entities as public entities subject to Article 227 of the Constitution.

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"The mere fact that an entity performs functions of public interest or is regulated by the State does not, without more, clothe it with the character of a public entity," the judges held.

The court emphasised that once employers and employees remit pension contributions to a retirement scheme, the funds become private trust property.

According to the judgment, the money is held exclusively for the benefit of scheme members and ceases to be public funds, even where the employer is a government institution.

The judges further noted that trustees, administrators, fund managers and custodians derive their authority from trust instruments established under the Retirement Benefits Act, not from the State, and are not financed through the Consolidated Fund.

The court also rejected the argument that contributions made by public employers retain their public character after being transferred to pension schemes.

It said such reasoning would produce an illogical outcome.

"Accepting that proposition would imply that an employee's salary remains public money even after it has been paid to the employee," the court observed.

The judges held that Article 227 of the Constitution governs procurement by State organs and public entities using public funds and was never intended to regulate privately held retirement savings.

The Supreme Court also faulted the Court of Appeal's conclusion that all retirement schemes regulated by the Retirement Benefits Authority (RBA) automatically qualify as public entities.

"The role of regulation or supervision does not change the character of a private enterprise into a public entity contemplated under Article 227 of the Constitution," the court said.

The judges were equally critical of the Retirement Benefits Authority over its change of position during the case. While the regulator had initially supported the retirement schemes' challenge in the lower courts, it later defended the disputed provision before the Supreme Court.

The court described the shift as "surprising" and "appalling", saying the authority had departed from evidence it had previously presented before the courts.

The judgment sets aside the decisions of both the High Court and the Court of Appeal and confirms that pension schemes sponsored by public institutions are not subject to the Public Procurement and Asset Disposal Act.

The ruling is expected to ease procurement requirements for trustees of public sector retirement schemes, allowing them to procure goods and services without following government procurement procedures that the industry argued had increased costs and reduced returns for pension scheme members.