Treasury CS Issues Strong Warning
National Treasury Cabinet Secretary John Mbadi has issued a stern warning to employers. Those who deduct pension contributions from workers’ salaries but fail to send the money to pension schemes will soon face criminal charges.
Mr Mbadi told the National Assembly Committee on Finance and National Planning about his plans. Specifically, he has submitted amendments to the Retirement Benefits Act. Once passed, these changes will make it a crime for employers to withhold pension funds.
The Problem With Current Law
Many employers regularly take statutory payments from employees’ salaries. Unfortunately, they do not forward these funds to the right agencies. As a result, this practice is widespread across the country.
“We have made a proposal to the Senate,” Mr Mbadi said. “We want to make non-remittance of pension benefits a criminal offense. We hope the law will be passed quickly.”
He stressed that pension benefits are non-negotiable. Furthermore, workers who have served the country deserve to retire with dignity. Consequently, they should not wait in vain for benefits that were supposed to be protected.
Currently, the law does not treat this failure as a crime. Instead, it views it as a moral failing. Nevertheless, Mr Mbadi believes this must change.
Billions Owed to Retirees
The state of many pension schemes is alarming. In fact, these schemes owe retirees billions of shillings. Moreover, they are underfunded and struggle to meet their obligations.
To address this crisis, Mr Mbadi proposed a solution. Specifically, institutions that owe huge pension arrears should create supplementary budgets. As a result, this would allow Parliament to allocate funds specifically for settling outstanding pensions.
Additionally, he revealed another troubling practice. Many employers only remit part of the deductions. Instead, they use the remaining money for other purposes, such as paying suppliers.
“It is illegal to use deducted money for other purposes,” he stated. “County governments are especially guilty of this practice.”
Proposed Solution
Mr Mbadi wants to integrate the payroll system. Therefore, once deductions are made, the money cannot be diverted. For example, if funds are meant for NSSF, they go there directly. Similarly, if they are for pension schemes, they go straight there.
Current Penalties
The Retirement Benefits Authority (RBA) already has some powers. For instance, if an employer fails to remit contributions, the RBA directs them to pay the full amount. In addition, they must also pay accrued interest within a set period.
Furthermore, employers face a five percent penalty on unremitted contributions. Alternatively, they must pay Sh20,000, whichever is higher. Notably, they have seven days to pay after receiving notice.
Meanwhile, the RBA can also issue a temporary cessation order. This stops further deductions until the employer can remit contributions properly.
The Scale of the Crisis
A February report revealed shocking figures. For instance, the Local Authorities Pension Trust holds Sh8.8 billion in unremitted pension funds. Similarly, the University of Nairobi Pension Scheme has failed to remit Sh8.3 billion. Additionally, the Local Authorities Provident Fund holds Sh6.8 billion in unremitted contributions.
Overall, according to the RBA, 47 schemes collectively hold Sh59.9 billion in unremitted pension contributions.
Next Steps
The committee has taken action. They have summoned all chief executive officers of institutions that owe employees billions in pension arrears. These leaders will have to explain their failure to protect workers’ retirement funds.
The proposed amendments represent a significant shift in policy. They signal that the government is serious about protecting workers’ pension rights.
