Teachers and civil servants aged below 45 will contribute two percent of their basic pay to the retirement scheme starting this January 2021.
Teachers and other government workers are expected to lose 2% of their basic pay on their January payslip to cater for the pension scheme. The amount will rise to five percent in the year 2022 and 7.5 percent in year 2023, with the government topping up the savings at the rate of 15 percent.
However only teachers and civil servants below 45 years will start contributing to the mandatory scheme which is already gazetted.
Many teachers may not feel the effect of the chop on their payslip because TSC is also expected to pay teachers their annual leave in this January payroll.
Civil servants receive their annual leave allowance every year in December. Government has also terminated Covid-19 tax relief and teachers and civil servants will have their PAYE reverted back to 30% from 25%.
On December the government had announced that effective 1st January, 2021 to enable the implementation of the government budget, the following measures will be taken:
- The Corporate Tax rate reverts to 30% from the current 25%
- The Individual Income Tax rate reverts to 30% from the current 25%
- The Value Added Tax rate (VAT) reverts to 16% from the current 14%
CS Yatani said membership to the scheme will be mandatory to all new entrants upon commencement of the Act and all employees aged below 45 as at January 2021.
List of documents TSC requires for processing of a teachers pension:
1. Duly filled TSC clearance certificate.
2. Two copies of bank plate both sides.
3. Two copies of national ID card both sides.
4. Duly completed option to commute pension form in duplicate.
5. Duly completed lump sum payment form (bank form).
6. Two copies each of all promotion letters/certificates.
7. The earliest copy of pay slip showing Women’s and Children’s Pensions Scheme (WCPS) deductions for male teachers
8. Copies of marriage certificates/ affidavits to confirm names for married teachers whose documents have different names.
Employees aged 45 years and above will have an option to join the scheme by completing the Public Service Superannuation Scheme option form. Records on the current service pension scheme indicate there are 375,000 teachers, 128,000 police and prison staff, more than 270,000 pensioners and 75,000 dependants.
The employees attached to ministries and State agencies will see a portion of their salaries sliced for onward remittance to the created Public Service Superannuation Scheme (PSSS). This means that State workers will cede about Sh2.4 billion monthly or Sh28 billion to the fund that will emerge as Kenya’s largest pension scheme.
Mr Yatani said the move is aimed at reducing the pension burden currently borne in whole by the exchequer, especially in the Covid-19 era that has seen revenue sources depleted.
Teachers and civil servants, unlike workers in the private sector, do not contribute to their pension, with their benefits paid straight from taxes. The free benefits will increase the taxpayers’ pension burden to Sh121 billion in the year starting July from Sh15 billion in 2002.
Part of the pension burden has been attributed to the government’s failure to push through necessary reforms, including kick-starting the contributory pension scheme that was first mooted eight years ago.
The government will match the contributions with an amount equivalent to 15 per cent of every workers’ monthly pay. This will be equivalent to about Sh6.9 billion monthly contribution or Sh55.87 billion annually,turning pension expenditures to one of the largest budget items.
The Treasury is spending more to keep retired civil servants comfortable in retirement compared to health (Sh111 billion), water (Sh83.3 billion) and energy (Sh72 billion.)
The government had in 2017 timed the launch of the contributory pension scheme to coincide with a bumper review of public servants’ pay. Civil servants’ basic pay increased by between 16 percent and 30 per cent in a review that cost taxpayers Sh20 billion in the year starting July 2017, a rise that was expected to ease the pain of the pension contribution cut.
Past bids to slice a portion of the take-home pay for civil servants has been vigorously contested in the past, leading to the delays in implementation of the PSSS.
A 2009 actuarial study commissioned by the government found that there was a pension liability of Sh499 billion at the time owed to civil servants who have worked knowing the State would cater for the retirement costs. The liability nearly doubled to Sh990 billion in 2014.