Kenya Pension Fund Assets Seen Trebling Under New Savings PlanBy
New compulsory civil-servant fund came into effect July 1
Fund targets 30 billion shillings by end of this year
Kenya’s introduction of a new retirement plan for civil servants is set to spur growth in the pension-fund industry, potentially helping to triple assets under management, according to the head of the new government employee fund.
The country’s 500,000 public workers are required to contribute 7.5 percent of their salaries to the new fund from this month, which will be supplemented by a 15 percent contribution from the government, Edward Odundo said in an interview in the capital, Nairobi. The fund seeks to have 30 billion shillings ($289 million) in assets by the end of this year and 100 billion in the next three years, he said.
“It will be one of the biggest funds in the country,” Odundo said on June 30. “That will help the pension industry move from the current 1 trillion shillings in assets to 2 and 3 trillion shillings in a very short time.”
The Kenyan government’s pension-fund liability amounted to 0.6 percent of gross domestic product in the 2014-15 fiscal year and is projected to double to 1.2 percent by 2020, as the number of government employees grows and salaries increase, according to the Treasury. It’s the second-largest expenditure item in the government’s Consolidated Fund Service, after interest payments.
The government is forecast to spend 76.6 billion shillings on pension contributions this year, compared with 60 billion shillings last year and 47.4 billion shillings the year before, Treasury Secretary Henry Rotich said at a briefing in Nairobi on June 30. The figure is expected to increase to 99.4 billion shillings by 2019.
The migration toward a compulsory fund is crucial to avoid the state’s liabilities growing “exponentially because there are many people retiring,” Rotich said in an interview. The fund will be eligible to all civil servants below the age of 45 years, he said, adding that older employees will remain in the current system.
The Treasury is seeking to ensure the liability reduces to zero by 2031, freeing up government spending, Rotich said.