Why some public pensioners are in old scheme

Government rejects merging Kenya’s old DB pension scheme with PSSS. [File, Standard]

Pensioners who did not join the defined benefit scheme at the time provided cannot transition from the old programme at the moment unless the law is amended.

This came as the government warned that merging Kenya’s old civil service pension scheme with the newer contributory scheme could bring back the financial pressures that necessitated pension reforms.

This emerged as the Public Service Commission (PSC) dismissed discrimination claims raised in a petition filed in Parliament, where two members of Kenya National Association of Public Service Pensioners in Kericho, a body representing former civil service workers and retirees countrywide, said they are adversely affected by the current pension framework governing the public service.

The petitioners claimed that this conversion excluded new entrants from the old scheme, leaving existing  pensioners under an obsolete system whose obligations remain unmet in terms of adequacy and regularity of payment.

But, the PSC explained that under Section 5(1)(a)(ii), every officer above 45 years at the PSSS's commencement was given the option to join the scheme and no discrimination arose.

PSC Deputy Chief Executive Officer, Gerald Kuhaka, told Parliament that officers who chose to remain in the Defined Benefits Scheme did so by exercising that right and the claim that the transition created a discriminatory dual-pension architecture is unfounded, as every officer over 45 years at the point of transition was free to choose.

“The Commission submits that the discrimination claim has been fully addressed above and does not hold,” he explained.

As for officers who had already retired before the transition, he said that the Public Service Superannuation Scheme (PSSS) Act cannot apply retrospectively.

He said that PSSS is more of a contributory scheme; since these retirees did not contribute to it, they cannot now be converted to PSSS benefits and their pensions remain fully funded by the Government.

“In any event, discrimination arises only where persons in the same category are treated differently. In this case, retirees are treated uniformly under the Defined Benefits Scheme, and serving officers were transitioned to the PSSS uniformly, so no discrimination occurs in either group,” he added.

But the committee sought whether the information was relayed to all to allow them time to transition.

Public Service Principal Secretary, Dr Jane Imbunya, who was also in attendance, confirmed that a circular from National Treasury was widely circulated through the normal government channels of communication.

“The decisive policy shift came through Treasury Circular No. 18 of 2010, in which the National Treasury directed all public sector pension schemes to convert from the defined benefit model to a funded defined contribution (DC) model,” she told the committee.

“The Circular's objective was to align public service pension arrangements with best practice in the retirement benefits industry, replace the open-ended Exchequer charge with a funded system in which both employer and employee contribute, and progressively reduce Government's unfunded pension liability. Every public sector employer was to convert by July 2011,” she added.

The petitioners had also argued that the system is discriminatory and proposed that the old non-contributory scheme be merged with the Public Service Superannuation Scheme (PSSS).

In a petition dated June 4, Kuhaka also stated that petitioners contend that the Public Service Superannuation Scheme Act, 2012, which moved public officers from the Non-Contributory Defined Benefit (DB) scheme to a Defined Contribution (DC) scheme from 1st January 2021, has created a dual pension system that treats officers and retirees under the two schemes unequally, with DB retirees receiving inadequate and irregular pensions.

They further argued that the statutory commutation of one-quarter of pension benefits reduces retirees' monthly income despite pension being an accrued right under Section 5 of the Pensions Act (Cap. 189); that the National Treasury's failure to conduct periodic actuarial reviews and implement SRC-recommended pension increases has eroded pensioners' purchasing power amid inflation and that dependents’ benefits under Section 17 of the Pensions Act are delayed by cumbersome administrative processes.

He said the petition sought amalgamation of all non-contributory civil service pension schemes into one unified and sustainable framework; an actuarial review and pension adjustments to cushion retirees against inflation; and a comprehensive review of the Pensions Act (Cap. 189) and the Pensions (Increase) Act (Cap. 190).

But the Public Service Superannuation Fund (PSSF) and the Ministry of Public Service rejected the proposal, with the PS explaining that this 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. The dual structure was a deliberate transition arising from reforms aimed at making public pensions financially sustainable,” she noted.

The old pension model was established in 1946 and was financed by the Exchequer, with employees making no contributions and no pool of assets set aside to meet future obligations.

The arrangement then 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.

PSSF chief executive Jonah Aiyabei explained that the two schemes are different in their financing and legal structures, making it difficult for a merger, even as he explained that employees currently contribute 7.5 per cent of monthly  basic salary and the Government contributing 15 per cent.

“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.

The PSSS had 529,635 members as of June 30, 2026, with the Government saying the funded model has also helped build a pool of long-term capital for investment.

Kenya's retirement benefits assets reached Sh1.7 trillion by June 2023.