The government has warned that merging Kenya’s old civil service pension scheme with the newer contributory scheme could revive the financial pressures that triggered pension reforms.
The warning comes as public pensioners push for an end to the country’s two-tier pension system.
The Kericho branch of the Kenya National Association of Public Service Pensioners had challenged the continued use of two pension arrangements for public servants.
They argued that the system is discriminatory and they want the old non-contributory scheme merged with the Public Service Superannuation Scheme (PSSS).
But the Public Service Superannuation Fund (PSSF) and the Ministry of Public Service have rejected the proposal in its current form saying the older model was unsustainable.
Principal Secretary for the for public service and human capital development Jane Imbunya said that amalgamation would require Parliament to address billions of shillings in existing pension liabilities, amend key laws and protect accrued benefits of current and retired public servants.
“The two schemes were created under different policy and legal frameworks and merging them would come at a huge cost to taxpayers,” said the PS.
She held that the dual structure was a deliberate transition arising from reforms aimed at making public pensions financially sustainable.
The old pension model, established in 1946, was entirely financed by the Exchequer, with employees making no contributions and no pool of assets set aside to meet future obligations.
The arrangement eventually became an “open-ended and growing liability” on the national budget and wage bill, prompting Treasury Circular No. 18 of 2010 directing public sector pension schemes to move from defined benefit to funded defined contribution arrangements.
The PSSS was subsequently established under the Public Service Superannuation Scheme Act and became operational on January 1, 2021.
Under the transition, officers below 45 years were automatically enrolled into the new scheme, while those aged 45 and above were given an opportunity to opt in between January and March 2021. Those who did not opt in remained in the old DB scheme, which was closed to new entrants.
The PSSF said the two schemes are fundamentally different in their financing and legal structures, making a straightforward merger difficult.
PSSF chief executive Jonah Aiyabei said that employees currently contribute 7.5 per cent of monthly basic salary and the Government contributing 15 per cent.
The old scheme, by contrast, is unfunded and operates on a pay-as-you-go basis, with pension obligations met from the Consolidated Fund.
“The contributory and non-contributory schemes operate under different legal and statutory regimes, the old scheme is unfunded while PSSF is funded through contributions from employees and the Government,” said Aiyabei.
As of June 30, 2026, the PSSS had 529,635 members, according to the Ministry. The Government says the funded model has also helped build a pool of long-term capital for investment, with Kenya's retirement benefits assets reaching Sh1.7 trillion by June 2023.
The biggest obstacle to a merger, however, would be the cost of converting the existing debt burden obligations into a funded arrangement.
PSSF said Parliament would have to make adequate fiscal provision to capitalise liabilities, either through the Consolidated Fund, a bond issue or a structured multi-year funding plan approved by Treasury and the Retirement Benefits Authority.
“Fiscal provision: Parliament must make adequate fiscal provision for the capitalisation of Cap. 189 liabilities, either directly from the Consolidated Fund, from a bond issuance, or through a structured multi-year funding plan,” the Fund said.
The Fund said the transfer of accrued pension entitlements would also have to be independently valued by a qualified actuary and either credited to individual DC accounts or placed in a ring-fenced defined benefit sub-fund until the liabilities run off.
“Conversion of accrued defined benefits to defined contribution accounts without consent or actuarially equivalent compensation would be unconstitutional,” the submission said.
A merger would therefore require major legislative changes, including amendments to or repeal of Cap. 189 and changes to the PSSS Act to accommodate the new structure. It would also require consultation with affected stakeholders and compliance with labour and retirement benefits laws.
Despite rejecting amalgamation as a simple solution, the PSSF acknowledged that pensioners' concerns over inflation, pension increases and administrative processes require government attention.
The Fund said an actuarial assessment of the non-contributory pension scheme had already been conducted by Treasury as at June 30, 2024, while decisions on implementing its recommendations fall within Treasury's mandate.
