New bill sets full pension pay for civil servants in early exits

The current retirement age is 60 years or 65 years for persons living with disability.

The Public Service Superannuation Scheme (Amendment) Bill, 2025, if enacted, could see hundreds of thousands of public servants gain control of their retirement savings.

The state-backed Bill sponsored by Majority Leader Kimani Ichung’wah seeks to overhaul the current pension regime, offering flexible payouts for members who resign or change careers before official retirement age.

It seeks to amend the Pension Service Superannuation Scheme Act (Cap189A) to address historical grievances, including locked-in savings and inordinate delays in accessing pension benefits.

Thousands of teachers and civil servants of various cadres are in the queue at the Treasury’s pension department waiting for their payouts. In the current law, civil servants only access benefits upon attaining retirement age.

Central to the proposed reforms, the Bill seeks to repeal the existing law, which says only benefits from contributions by a member would be handed to the member, yet more after a long wait.

The current law is that all benefits derived from contributions made by the government to a retirement savings account are only available after five years.

It is paid at the rate of 50 per cent of the accumulated amount and increases by 10 per cent each full year, up to a maximum of 120 per cent after 10 years of service.

This means government contributions only become fully owned by the employee after 10 years of service.

Exemptions are only catered to in the death of the member, where the benefits accrue to his or her dependants immediately, while the individual contributions are also only accessible to those 50 years of age and above.

As such, youthful civil servants who change careers have had to wait for years to access their benefits, including those from their individual contributions.

“All retirement savings shall immediately vest in a member,” the proposed law, which is before the National Assembly, reads in part.

If passed, every shilling contributed by the government would belong to the employee from the moment it is paid into the scheme.

The Bill, coming when many civil servants are seeking pension benefits, proposes to dismantle barriers that prevent early access to funds, granting members the right to their savings upon exit.

 “A member may access accrued retirement savings on leaving employment before retirement in accordance with the Retirement Benefits Act," it says.

This means public servants who resign or transition to the private sector would no longer have to wait until the official retirement age of 60.

Instead, they could either withdraw their entire accrued savings as a lump sum or transfer the full balance to another registered pension scheme.

The government has itself acknowledged in PSS fact books that the scheme, as structured today, disadvantages employees.

Besides the age cap, benefits are not portable and it is also a defined benefit scheme that does not allow benefits improvement. There is no investment income or voluntary contribution, the brief reads.

The proposed law thus intends to unlock the bottlenecks while addressing administrative inefficiencies blamed for the long queues at the pensions payout desks.

It introduces strict new obligations for employers, including the Teachers Service Commission, the National Police Service and the Public Service Commission, to address perennial delays in remittance of contributions.

The suggested law provides that they must deduct and remit contributions to the custodian “not later than ten working days after the end of the month.” 

It further stipulates that failure to do so would incur a penalty based on the scheme’s rate of return from the previous financial year.

The measure is designed to ensure timely remittance and protect members’ savings.

“The Bill proposes to streamline governance and administration of the scheme (Public Superannuation Scheme),” Ichung’wah said in the Bill’s memorandum.

To bolster governance, the bill proposes a complete restructuring of the scheme’s board of trustees to include more partners, including nominees from key unions such as the Kenya National Union of Teachers and the Union of Kenya Civil Servants.

The government says the aim is to “ensure the management of the fund is more representative and accountable.”

The Bill seeks to ensure that the interests of all categories of public servants are considered in the management of the fund.

To boost transparency, the proposed law provides that schemes hold an annual general meeting for members six months before the end of a financial year.

The Bill further introduces options for payout.

While a member can take a lump sum, the proposed law also allows for structured withdrawals. 

It amends Section 28 of the existing PSS Act to clarify that retirees may opt for “monthly or quarterly withdrawals from an income drawdown plan.”

The Bill also explicitly shields the scheme from the Unclaimed Financial Assets Act. “The provisions of the Unclaimed Financial Assets Act shall not apply to the scheme,” the bill reads.

This, if enacted, would prevent members’ savings from being transferred to the Unclaimed Financial Assets Authority and ensure they remain within the pension system indefinitely.

The Bill also caps administrative expenses at not more than 1 per cent of the total scheme assets, releasing more resources toward member benefits.

INSTANT ANALYSIS

President William Ruto has been on a rallying call that his administration would streamline pensions. By granting immediate vesting and access to pensions, pundits hold that the government is not only promoting financial inclusion but also fostering a culture of self-reliance and entrepreneurship among its workforce. The proposal, however, has to navigate the legislative process in the National Assembly, which includes committee scrutiny, public participation, and potential amendments.