A parliamentary committee has shot down proposed changes to the law to have pension pay adjusted for inflation, saving the Exchequer from increased burden but dealing a blow to retirees.
The National Assembly’s Departmental Committee on Finance and National Planning says the proposed automatic cost of living adjustment (COLA) on pensions would burden an already strained Exchequer, while giving a cadre of retirees an unfair edge over others.
The proposals are part of the Pensions (Amendment) Bill, 2024, which would have compelled the National Treasury to adjust pension payments to mirror the prevailing inflation rates, ultimately increasing the pension pay and putting further strain on the public finances.
The Exchequer is grappling with a piling pension bill, marked by delays in the monthly pension payments to the over 260,000 pensioners from the public sector.
“Further, it (committee) noted that implementing the proposals in the Bill would substantially strain the Exchequer within Kenya’s tight fiscal space.
“Finally, the committee also observed that the Bill is discriminatory and is in breach of Article 27 of the Constitution since it provides for different treatment of two tiers of retirees.”
Lawmakers are expected to adopt the recommendations by the committee to reject the proposed cost of living adjustment in the Bill.
Public service retirees have been experiencing delays in receiving their monthly salaries over the past few years amid mounting obligations on the Exchequer, notably debt payment.
For example, the Treasury failed to wire Sh24 billion that was due to pensioners in the financial year ending June 2024, underscoring the cash crunch caused by rising debt payments and weaker-than-projected tax collections.
Last month, the National Treasury disclosed uncertainties over pension payments to retirees between last month and June this year due to constrained fiscal space.
The committee’s stance mirrors that of the National Treasury, which opposed the proposed changes, saying that the pension adjustment for retired civil servants is guided by the Pensions Increase Act.
The Pensions Increase Act provides for a three percent increase every two years, implemented on July 1.
The Exchequer spent Sh115.13 billion on pension bills between July 2024 and March this year, out of a budgeted total of Sh223.14 billion for the full financial year ending this June.
The National Treasury had opposed the proposal to base pension payments on COLA and also compute it based on the last salary that a retiree earned at the time of exit, saying that these would lead to significant fiscal implications due to the fast-growing number of pensioners.
Additionally, the Treasury said that its pension department is undertaking an actuarial study of the public service pension scheme. The study will then enable data-driven decisions, including inflation adjustments.
