A proposal to issue a special Treasury bond has emerged as pension fund managers seek to recover more than Sh71 billion in unremitted retirement deductions, with county governments carrying the biggest share of the debt that continues to lock away workers' savings.
The proposal is aimed at clearing a growing backlog of unpaid pension contributions that industry players say has become a major threat to retirement schemes. Pension managers argue that settling the arrears through a Treasury-backed bond would restore confidence in the sector while easing the burden on affected pension funds.
CPF Group is proposing that the National Treasury issue the bond on behalf of all the 47 county governments. Under the arrangement, pension schemes would receive the outstanding money immediately, while counties would repay the debt over an agreed period.
Speaking during the recent CPF annual general meeting, CEO Hosea Kili said discussions are ongoing with county governments, the Council of Governors and the National Treasury to identify practical solutions, including the proposed bond, to end the long-running problem of unpaid contributions.
“The fund achieved a strong annual return of 10 per cent underscoring the resilience of this long-term investment. However, non-remittance of contribution by employers is a big challenge. I do not understand how a salary which is supposed to be paid together with the statutory deduction is paid but then the statutory deductions are not remitted,” said Kili.
Retirement Benefits Authority (RBA) CEO Charles Machira said county governments and other quasi-government agencies currently owe more than Sh71.4 billion in pension deductions that were collected from employees but never remitted to retirement schemes.
The unpaid contributions have continued to strain pension funds despite strong growth across the sector. While pension schemes have recorded an increase in membership and assets, delayed remittances from employers have slowed progress and affected expected returns.
Kili said the Laptrust scheme has continued to build its asset base, but the persistent failure by employers to remit pension deductions has limited its full growth potential.
Council of Governors Chairperson Ahmed Abdullahi said officials responsible for withholding employees' pension deductions without forwarding them should face criminal charges, arguing that the practice amounts to misuse of workers' money.
"It is criminal to deduct an employee’s money and fail to remit it. It is unfortunate that the duty bearers including payroll officers, auditors, county assembly and the Senate have failed to enforce remittance. In fact, county officials who oversee the payment of salaries and fail to remit deductions must be arrested," Abdullahi said.
He also warned counties against allowing fresh arrears to accumulate, saying delayed payments only make the debt harder to clear as obligations continue to grow.
“The pension fund managers must ensure that the current county administrations do not end their term with arrears. Arrears which have built up in the past should be addressed separately. A payment plan should be developed for arrears which can not be paid now,” Abdullahi said.
He said counties should develop structured payment plans for historical arrears while ensuring current pension deductions are remitted without delay to prevent the debt from growing further.