Why Pension contributions could soon dry up
John Otini
Pension contributions are set to drop due to the ongoing staff retrenchments across the country, retirement fund industry players have warned.
Pension fund administrator Zamara Group chief executive officer Sundeep Raichura said the industry has noted decrease in contributions since last year.
“The actual numbers are not out yet, but contributions are decreasing due to increased layoffs that started in 2019,” he said.
A reduction in pension contributions means less money will be available to fund government projects. A recent Moodys’ report indicated that Kenyan banks may not be able to lend to the government.
However, data from the Retirement Benefits Authority (RBA) shows that pension contributions increased by 46 per cent to Sh134.95 billion in 2018 compared to the previous year’s Sh91.65 billion.
Nzomo Mutuku, RBA chief executive officer said this growth was due to an increase in civil servants’ salaries. “There was a payrise in 2017 that increased the wage bill,” he added.
Increase in pension contributions meant that there was more money to fund investments in government securities where most of the pension money usually goes.
The rise in civil servants pay is part of the reforms proposed in mid-2017 by the Salaries and Remuneration Commission (SRC) in an effort to bridge the huge wage disparities, the aim being to raise the pay of civil servants by some Sh100 billion over the next four years.
It also attributed the increase in pension funds to more employees joining pension schemes.
“There has been increased mobilising and campaigns to boost pension contributions, this has increased awareness,” said Steve Gathuku, a senior pension manager at Kenya Power Pension.
The rise in contributions was also attributed to high savings from existing schemes and a surge in voluntary contributions where individuals choose to start own saving plans, according to Raichura.
