Kenya introduces new retirement plan for its 500,000 civil servants
Kenya’s introduction of a new retirement plan for civil servants is set to spur growth in the pension fund industry, potentially helping to triple assets under management, according to the head of the new government employee fund.
The country’s 500,000 public workers were required to contribute 7.5% of their salaries to the new fund from this month, which would be supplemented by a 15% contribution from the government, Edward Odundo said in an interview in the capital, Nairobi.
The fund sought to have 30-billion shillings ($289m) in assets by the end of this year and 100-billion shillings in the next three years, he said.
"It will be one of the biggest funds in the country," Odundo said on June 30. "That will help the pension industry move from the current 1-trillion shillings in assets to between 2-trillion and 3-trillion shillings in a very short time."
The Kenyan government’s pension-fund liability amounted to 0.6% of gross domestic product in the 2014-15 fiscal year and is projected to double to 1.2% by 2020, as the number of government employees grows and salaries increase, according to the treasury. It’s the second-largest expenditure item in the government’s Consolidated Fund Service, after interest payments.
The government is forecast to spend 76.6-billion shillings on pension contributions this year, compared with 60-billion shillings last year and 47.4-billion shillings the year before, treasury secretary Henry Rotich said at the briefing in Nairobi on June 30.
The figure is expected to increase to 99.4-billion shillings by 2019.
The migration toward a compulsory fund was crucial to avoid the state’s liabilities growing "exponentially because there are many people retiring," Rotich said in an interview. The fund would be eligible to all civil servants below the age of 45 years, he said, adding that older employees would remain in the current system.
The treasury was seeking to ensure the liability reduced to zero by 2031, freeing up government spending, Rotich said.