Treasury scrambles to clear pension backlog as payouts soar to Sh82.84 billion

Pension payouts have surged despite the National Treasury struggling to clear a mounting backlog, with disbursements rising by 40.39 per cent in the first half of the current financial year.

Data from the National Treasury indicates that the Pensions Department processed payments amounting to Sh82.84 billion in the six months to December, a sharp rise from Sh59.01 billion disbursed during the same period the previous year.

The government has faced persistent challenges in settling pension obligations due to revenue shortfalls, exacerbating financial hardships for retirees, some of whom passed away before receiving their dues.

Last year, the Treasury rolled over Sh23.78 billion in pending pension claims from the financial year that ended in June, citing inadequate revenue collection.

The delay occurred despite pension payments being classified as a "first charge" under the Public Finance Management law, alongside debt repayments and salaries for state officers.

The pension burden has further intensified following President William Ruto’s directive in July that all public servants reaching the mandatory retirement age of 60 should vacate office. The order disrupted a long-standing practice where experienced civil servants with specialised skills were retained beyond retirement age to mentor younger staff.

The rise in pension expenditure in the first half of the financial year marks the fastest growth since 2021/22 when the Treasury was clearing a backlog caused by disruptions linked to the Covid-19 pandemic. The pandemic had slowed pension processing, which is largely paper-based, due to movement restrictions that affected retirees seeking to complete necessary procedures.

Overhaul pension management

In a bid to improve efficiency, the Treasury has announced plans to overhaul public service pension management by introducing a digital system.

“Digitisation will streamline processes, improve accuracy, and facilitate timely pension payments,” the Treasury said in its 2025 draft Budget Policy Statement.

“This also enables better monitoring and management of pension-related matters while re-engineering will complement the digitisation by providing an end-to-end enterprise resource planning solution that takes advantage of modern IT technologies.”

Despite the increase in payouts, the pension budget still falls short of its target by Sh28.74 billion, or 25.75 per cent, based on the full-year allocation of Sh223.15 billion.

The growing pension burden, driven by mass retirements, has raised concerns about a potential labour crisis in the public sector. This is compounded by a temporary freeze on new hires pending the completion of an audit aimed at removing ghost workers from public payrolls and pension registers.

The strain on taxpayers has persisted despite the government’s 2009 decision to raise the retirement age from 55 to 60, a move meant to delay pension liabilities.

However, the Treasury’s failure to implement critical reforms, including a contributory pension scheme, has also led to a steady rise in pension claims paid directly from state coffers — from Sh25 billion in the financial year ending June 2009 to the current estimate of Sh223.15 billion for the year ending June 2025.

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According to the Pensions Department, approximately 85,400 public sector workers are set to retire by June 2026. This includes 30,155 who exited in the last financial year, 28,745 expected to retire by June 2025, and a further 26,500 in the following year.