Unremitted pension contributions rise to Sh57 billion, threatening retirees' security
A recent RBA survey highlighted the hardships facing retirees, with 57 per cent of pensioners stating that their savings were inadequate to sustain them in retirement.
Unremitted pension contributions in Kenya have risen to Sh57 billion as of December 2024, up from Sh47.16 billion in June, worsening the financial insecurity of pensioners.
The Retirement Benefits Authority (RBA) attributes the growing arrears to inefficiencies in pension scheme management, with public sector schemes accounting for 98 per cent of the total backlog.
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RBA Chief Executive Charles Michira warned that the actual arrears could be even higher when investment income is factored in.
“The Sh57 billion arrears is only the principal amount. If you add the investment income, which is a lot, then the unremitted contributions are more,” he said.
The failure of employers to remit deducted pension contributions has left many retirees struggling with inadequate savings.
RBA points to governance challenges within pension schemes, where half of the board of trustees is made up of employer-appointed staff, including directors and executives.
This structure makes it difficult for trustees to enforce remittances without clashing with their employers.
“When this law was designed, it was not expected that employers would deduct and fail to remit. We put emphasis on trustees to ensure compliance but forgot the employer appoints most of the trustees, giving room to mischief,” Michira said.
To address the issue, RBA is pushing for the Kenya Revenue Authority (KRA) to take over the collection of unremitted pension contributions.
If approved, KRA will have the authority to issue agency notices to defaulting employers and impose sanctions, including freezing or attaching bank accounts.
“The amendment aims to anchor the collection of unremitted contributions as part of the functions of KRA,” RBA said.
The proposed policy change comes as the pension industry struggles with low coverage, which currently stands at 26 per cent. The move would also empower KRA to set payment deadlines for employers, including interest and penalties for delays.
Michira emphasised the need for stricter enforcement.
“Why you deduct and fail to remit is criminal. We need to delegate the agency powers to KRA. KRA has better enforcement powers, including accessing employer accounts,” he said.
KRA already enforces various laws beyond its core tax-collection mandate, including those under the Traffic Act, the Second-Hand Motor Vehicles Tax Act, the Betting Lotteries and Gaming Act, and the Stamp Duty Act. If given the mandate, it could streamline pension collections more effectively than pension trustees.
Public universities and county governments have been identified as major offenders in failing to remit pension deductions.
A recent RBA survey highlighted the hardships facing retirees, with 57 per cent of pensioners stating that their savings were inadequate to sustain them in retirement.
The growing arrears and governance issues within pension schemes continue to threaten the financial stability of retirees, raising calls for urgent reforms to ensure workers receive their full pension benefits upon retirement.
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