Understanding Retirement Benefits in the Public Service

Retirement benefits in the public service are governed through various laws and regulations, as well as government circulars and directives.

Article 43(1) of the constitution states that every person has the right to social security, whereas Article 43(3) enjoins the State to provide appropriate social security to persons who are unable to support themselves and their dependants.

In line with the constitutional requirement, and the need to ensure social protection for retired government workers, the government provides retirement benefits for all public service workers.

In July 2017, SRC issued Gazette Notices on remuneration and benefits for State officers, including the president, deputy president and State officers. Further, the Council of Governors was guided in setting up a retirement scheme for State officers in county governments.

It was determined that there shall be two types of retirement benefits for State officers in the county governments – Pension and Gratuity. An employee may opt for either of the benefits.

In addition, where an employee opts for gratuity, the applicable conditions and rates shall apply, as set by SRC.

Where an employer establishes a pension scheme for its State officers, the following guidelines shall apply:

• Scheme design: The scheme design shall be Defined Contribution Scheme.
• Pensionable emoluments: Pensionable emoluments (that is, salary used to calculate pension emoluments), shall be expressly defined as 60 per cent of the monthly gross remuneration package, as set by SRC for State officers.
• Contribution rate:

1. The employer’s contribution rate shall be at least 15 per cent of the member’s monthly pensionable emoluments, and shall not exceed two times the employee’s contribution rate or 20 per cent of the pensionable emoluments, whichever is lower.
2. The member’s contribution rate shall be at least 7.5 per cent of the monthly pensionable emoluments.
3. A member may make additional voluntary contributions to the scheme.

• Funding: Pension benefits provided under the scheme shall be fully funded from the accumulated funds in the pension scheme account.
• Benefits: Benefits shall be administered in accordance with the Trust Deed and Rules of the pension scheme, as guided by the Retirement Benefits Authority (RBA) Regulations, provided that such benefits shall be fully funded from the pension scheme account.
• Eligible members: The county State officers pension scheme shall cover all State officers in the county governments, both elected and appointed.
• Transition: Members may opt to transfer gratuity accrued as at the date of joining the scheme, into the pension scheme, provided that no additional cost shall be incurred by the employer on such transfer.
• Compliance to existing laws/regulations: The pension scheme shall be established in compliance with the RBA Act and Regulations, Kenya Revenue Authority income tax laws, and other relevant laws and regulations governing pension schemes in Kenya.

Additionally:

• No State officer shall benefit from both pension and gratuity from the same public service employer for a similar period.
• The effective date of the pension scheme shall be the date of establishing the scheme.
• The effective date of the employee membership to the pension scheme shall be the date of joining the pension scheme.
• An employer seeking to establish a pension scheme for its State officers, shall submit a copy of the draft Bill to SRC, for concurrence.

On 24 November 2010, the National Treasury issued Circular No. 18 of 2010, that set various scheme parameters to be met and maintained by all public service retirement benefits schemes.

The circular went into effect from 1 January 2011, and provided the following parameters:

• Scheme funding level for Defined Benefit schemes

1. All Defined Benefit (DB) schemes are required to maintain the statutory 100 per cent funding level, as stipulated under the Retirement Benefits Act, and reviewed from time to time by RBA.
2. All DB schemes are required to have converted into Defined Contribution (DC) schemes not later than 1 July 2011. The conversion process is guided by provisions of the Retirement Benefits Act, Regulations and guidelines issued by RBA. Scheme members with less than five years to attain the retirement age may be given an option to stay in the DB scheme or transfer to a new DC scheme. This option is necessary to protect their pension rights and accrued benefits.
3. All DB schemes must make provision for funding any scheme deficit before the conversion to a DC scheme is complete. If not, the DB scheme shall submit a statutory remedial plan to RBA, where none has been submitted before, indicating how the sponsor and trustees intend to eliminate the deficiency.

• Eligible employees: All employees will be eligible to join a scheme if they are appointed on permanent and pensionable terms of service and are over 18 years of age, or such age as stipulated by RBA from time to time. Directors and Commissioners of State corporations and Commissions are not eligible employees, and should not be included in the State corporation or Commission’s retirement benefits scheme.
• Pensionable emoluments: Pensionable emoluments has been a major cause of the low scheme funding levels, as several under-funded schemes factored some allowances. The following rules will apply in defining the pensionable emoluments:

1. Pensionable emoluments must be defined as basic salary excluding housing, transport and any other allowances, or fluctuating emoluments.
2. Pensionable emoluments shall be the average of the last three year’s annual basic salary before retirement.

• Rates of contribution: The following contribution rates apply to all DC schemes:

1. Employer contribution rate: The employer’s contribution rate shall not exceed two times the employee’s contribution rate, or 20 per cent of the pensionable emoluments, whichever is lower.
2. Employee contribution rate: The employee’s contribution rate shall not be less than 5 per cent of the pensionable emoluments. In addition, the employee shall meet a minimum of a third (¹/₃) of the total cost of funding the scheme benefits.

Illustration

• Death in service benefit: This benefit will be provided through an insurance policy purchased through a reputable insurance company. It shall not exceed three times of the pensionable emoluments.
• Disability benefit: This benefit will be provided through an insurance policy purchased through a reputable insurance company. It shall not exceed three times of the pensionable emoluments.
• Retirement age: The normal retirement age shall be 60 years of age, or such age as may be stipulated from time to time by the cabinet secretary responsible for matters relating to human resources. However, the following variations may apply:

60. A retirement age stipulated for a State officer in the Constitution of Kenya, 2010, shall be adopted in lieu of age 60.
61. Academic and scientific staff at universities, colleges and research institutions may retire at 65 years of age, or such retirement age as approved from time to time by the cabinet secretary responsible for matters relating to human resources.
62. An early retirement age may be set at not less than 50 years of age.

• Commutation of pension: Where a pension scheme allows partial commutation of benefits at retirement, that is, conversion of part of the pension into a cash lump sum, the amount of pension commuted will not exceed a third (¹/₃) of total accrued benefits, or such level as shall be provided for in law from time to time. The conversion shall be done at an actuarially determined rate, and not a fixed rate.
• Pension increase: The pension increase rate for DB schemes shall not exceed 3 per cent per annum, but subject to the scheme’s funding level. This requirement will not apply upon conversion of a DB scheme into a DC scheme.
• Scheme administration expenses: This will be met out of the scheme fund, except for death in service benefits. However, the employer may meet the set-up costs for a new scheme, in its first year of operation.

Retirement benefits for some State officers and other public officers are provided and regulated through Acts of Parliament, which provide the entitled persons, eligibility criteria, benefits to be provided, and other rules to guide on provision of the benefits