Unpaid pension funds rise to Sh47.16 billion, leaving Kenyan retirees at risk

Kenyan workers are at risk of financial struggles when they retire, as unpaid pension contributions by public universities and county governments increased by 12.3 per cent to reach Sh47.16 billion in the year ending June 2024.

According to the latest report by the Retirement Benefits Authority (RBA), the amount of money deducted from workers' salaries for their retirement savings but not sent to pension schemes grew from Sh42 billion.

This puts many pensioners at risk of having insufficient funds for their retirement.

"This challenge largely affects quasi-government institutions, which mainly comprise public universities and county governments. To address this, the authority has continued to engage various stakeholders, including the National Treasury and the National Assembly, with the aim of securing commitments for the funds to be remitted to schemes," reads the RBA report.

In Kenya, employers who delay sending pension money are fined Sh20,000 or five per cent of the unpaid amount every month, whichever is higher.

However, the continued rise in unpaid contributions suggests the fines are not working or that the institutions are struggling financially.

The situation is even worse for retired civil servants. For example, the Treasury failed to pay Sh23.78 billion to about 260,000 retirees in the year ending June 2024, due to "liquidity challenges," showing that workers’ problems don’t end when they retire.

Low savings

RBA noted that the buildup of unremitted pension contributions occurs against a backdrop of low savings in the sector.

The RBA also mentioned that the growing pile of unpaid pension money comes at a time when savings in the pension sector are low.

While the International Labour Organisation suggests retirees should replace at least 40 per cent of their income through pensions, Kenya only provides 32 per cent, meaning many retirees will not be able to live comfortably.

Pension coverage in Kenya is at just 26 per cent, with many workers, especially in the informal sector, not saving for their retirement.

The Treasury has estimated that about 85,400 public service workers will retire between now and June 2026.

In the year ending June 2024, 30,155 workers are expected to retire, followed by 28,745 in the current financial year and 26,500 in the following year.

General Manager for Pensions at Liaison Group Kennedy Keli, warned that the accumulation of unremitted pension contributions poses serious risks to both individual savers and the broader financial system.

"When employers fail to remit contributions to pension schemes, it compromises the integrity of the pension funds and can lead to insolvency issues, ultimately jeopardising the financial well-being of retirees. When employees observe that their hard-earned contributions are not being properly accounted for, it breeds distrust in the pension system,” he said in an interview with Business Daily.

"This erosion of trust not only dissuades individuals from saving but also diminishes their willingness to engage in long-term financial planning."

Keli further cautioned that widespread unremitted pensions may encourage individuals to adopt short-term savings strategies, sacrificing future financial stability for immediate gratification.