africa

Is CS Henry Rotich targeting State agencies in pension law review?


NAIROBI, KENYA: The National Treasury’s proposal that all employers including State agencies must honour their remittances to pensionscheme seems to be setting it on a precarious political journey.

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Treasury Cabinet Secretary Henry Rotich announced the government’s intention to amend the Retirement Benefits Act, to compel employers who do not remit their employees’ pension contributions to do so or face severe consequences.

He wants to criminalise the failure to remit such benefits, and have the employers stand liable for the offence.

“We have cases of some employers who have failed to remit pension contributions to their respective retirement benefit schemes,” said Rotich while reading the budget recently.

“In order to compel employers to remit their pension contributions, I propose to amend the Retirement Benefits Act to enable the Retirement Benefits Authority (RBA) intervene against any employer who fails to remit such contributions to the scheme.”

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The step the CS is taking could however lead to a staid clash of politically charged interests, given that government bodies are the major culprits.

They have huge debts of unremitted employee contributions to pension schemes.

It also remains doubtful if Rotich will enforce the spirit of the proposed law on State bodies that have failed to remit their dues. This is because most of them draw the money they are supposed to remit as employee contributions from Treasury’s coffers. Counties are the biggest defaulters.

They owe pension firms the biggest debt in terms of employee contributions that have not been remitted to the Local Authorities Provident Fund (LapFund) and the Local Authorities PensionTrust (LapTrust).

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As of September 30, 2017, the counties had not remitted Sh30 billion to the two schemes, according to LapTrust.

Laptrust Chief Executive Officer Hosea Kili in a previous interview said they are not worried of delayed remittances given that the risk is wholly borne by the Government, which legally stands as the sponsor and guarantees the counties’ debt.

On top of the counties’ unremitted debt, former employees of the defunct Kenya Posts and Telecommunications Corporation (KPTC) in April this year sought Retirement Benefits Authority’s intervention in a ruling that could see their emoluments paid fully by the State.

Apparently, before KPTC was split 19 years ago into Postal Corporation of Kenya and State agencies such as the Communications Authority of Kenya and Telkom Kenya, the parent Statebody was not remitting employee contributions and it had serious problems with the scheme trustees for undervaluing the pension payments to the former employees.

RBA on April 24 this year, ruled that the government was to pay the former KPTC employees Sh1 billion since KPTC was a State entity by the time it was split.

That is not the only case of a government related agency or corporation failing to remit pension contributions and falling into bad debts.

Recently, the Ministry of Education commissioned a report that sought to unearth the possibility of leading public universities failing to remit their employee contributions to the various university pension schemes.

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That is after the universities’ labour union, Universities Academic Staff Union (Uasu) raised a red flag claiming that the academic institutions had fallen back in remitting their contributions and as a result, they were battling huge debts.

Unremiited contributions

When the report was unveiled two weeks ago, the contents were strikingly disturbing.

Pension deductions for almost half of the 27,000 university staff spread out across the country were not being remitted.

Among them were the University of Nairobi that had a unremitted debt of Sh1.35 billion, Jomo Kenyatta University of Agriculture and Technology with Sh1.1 billion and Technical University of Kenya at Sh946 million.

 Collectively, the universities had an unremitted contributions debt amounting to Sh4.58 billion.

The debt typically earns an annual interest and some of these institutions being owned by the public means the State will bear the debt burden.

Pension law expert Titus Koceyo said it will demand a lot of goodwill from the State to enforce Rotich’s law and hold parastatals and other bodies to account when it comes to remitting the contributions.

“I can confidently say that this is an extremely timely law. The current Retirement Benefits Act only allows RBA to go after trustees and sue them when contributions are not remitted to the scheme,” said Koceyo in an interview with the Financial Standard.

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“RBA cannot touch the employer. And trustees are also a toothless lot. All they can do is write demand letters to the employers, letters that the employer simply ignores. But now, Rotich’sproposal is going to give teeth to RBA and make it be able to go after the employer.”

Koceyo noted the employer can even be arrested and taken before the Pension Tribunal and forced to remit the cash or face charges.

“RBA can even impose sanctions to such an employer and have the scheme dissolved while the employer faces the legal repercussions,” he added.

Fund administrator

Koceyo explained that in forcing the employers to remit the contributions, the government has to step in. Treasury has to develop some steely nerves and hold some of the State agenciesunder it responsible.

Erick Onyango, an associate consultant at pension fund administrator Zamara, said in an interview that the biggest question is whether the government will master enough goodwill to execute the new law.

 “This law is very good. And it is possible for it to apply even on government entities, since it is a legal requirement for even the State to regulate itself,” Onyango said. “The Government bodies that do not remit employees’ contributions could risk those schemes being wound up. But the question is can this law be executed?” “It is difficult to put this into action since the stateentities could just ignore it and I don’t think Treasury could do much about that. Though it is going to be very tough for the private sector,” he added.

Pensioners have had battles with RBA after years of work while thinking their employers — mostly State agencies — were paying their part of retirement emoluments, only to find out years later that they have nothing to claim with the only option being tedious court cases with the employers.

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Whether the new proposal by Treasury will change the predicament boils down to goodwill in enforcing the proposed law.

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