County staff retirement pay at risk as pension scheme row hots up

Thousands of county government workers risk retiring without any savings, following a bitter row pitting the Council of Governors, the Attorney General’s office, the Retirement Benefits Authority (RBA) and the Transition Authority over the form and structure of a proposed new pension scheme.

At stake is about Sh20 billion a year, which the more than 100,000 county government employees contribute as savings for retirement. The figure is made up of over 70,000 staff seconded from the national government and from the 32,000 defunct local authorities and newly recruited county workers.

The controversy has been ignited by the Council of Governors’ decision to endorse the Laptrust (Umbrella) Retirement Fund on May 14 to offer retirement benefits to county governments’ staff.

In a circular dated June 16, 2014, copied to county public service boards, the Council of Governors Chairman Isaac Ruto said the resolution was “in line with the provisions of Section 132 of the County Governments Act 17 of 2012”.

Laptrust (Umbrella) Retirement Fund is affiliated to the County Pension Fund (CPF), previously referred to as the Local Authorities Pension Trust (Laptrust), a pension scheme for former local authorities’ employees, whose assets the Attorney General says  are illegally vested in a private entity.

“All counties are expected to embark on the implementation of this decision without any delay,” said Mr Ruto, adding that the scheme will undergo slight restructuring to suit the county governments system within the next six months.

The Bomet County Governor further said staff seconded from the national government and serving in the devolved units “shall remain in the interim period pending full determination of the matter” and that their benefits shall in the meantime continue to accrue in the mainstream non-contributory civil service scheme till they are fully absorbed and their services are permanently transferred to the counties.

It is understood that in the proposed pension scheme, the employers and the employees will make a contribution of 15 per cent and 12 per cent of basic salary respectively, per month. For the 15 per cent contribution, two percentage points would go towards settling a group life insurance premium.

Now critics are questioning how the two per cent rate was arrived at. They allege the figure is way higher than the market rate.

“Where on earth does one spend about 25 per cent of his or her annual earnings on an insurance cover?” posed a source familiar with pension schemes.

But CPF Managing Director Hosea Kili observes that the two per cent rate is the upper limit.

“It could be lower than this depending on the quotations received from prospective insurance companies,” Mr Kili told The Standard.

The endorsement of Laptrust (Umbrella) Retirement Fund is a departure from the recommendations by the Technical Committee on Establishment of County Public Service Staff Pension Scheme which had been tasked to advise the Council of Governors on a new pension scheme.

However, the County Government Workers’ Union says it was not consulted on the new scheme.

“The Council of Governors cannot make a one-sided decision on such a critical issue affecting our members,” said Mary Murongoro, the union’s chairperson.

It is also emerging that some governors could be holding a position that differs from that of the council.

One governor, speaking in confidence, claimed that Mr Ruto’s position was not that of all the governors.

“In the long run, each county may make its decision on which scheme to adopt,” said the governor.

And Kilifi Governor Amason Kingi told The Standard they were still discussing the issue. “At the end of the day, it comes down to individual counties and governors,” said Mr Kingi.

The Standard has established that in a meeting held at the Kenya School of Professional Studies on April 29, the task force observed that the new pension scheme should be established under an Act of Parliament “to safeguard the umbrella scheme against any arbitrary changes to any aspects of the scheme”. This, it held, would give it a national outlook and protect public interest.

It further called for the closure of the Local Authorities Provident Fund (Lapfund) and Laptrust schemes to all employees of the county governments besides proposing merging of their administrative services.

“The merged organisations will provide administrative services to the two closed funds that are currently managed by Laptrust and Lapfund as well as the new umbrella scheme,” it noted.

In the same meeting, it was reported that the Senate has taken notice of the situation and has in turn proposed a county retirement benefits scheme.

Even with the proposed merger, the task force said the funds managed by the two pension schemes would not be amalgamated “until all the liabilities owed are settled by the two levels of government”.

Crucially, it reasoned that the setting up of the new pension scheme for county staff would be informed by the standards set up by RBA and the Treasury Circular No. 18/2010.

Insiders say if the recommendations of the task force were adhered to, the Transition Authority in consultation with the National Treasury, Public Service Commission, the Ministry of Devolution and the Council of Governors would have issued guidelines on how the staff would transit to the new scheme. However, industry sources allege this crucial step was ignored by the Council of Governors.

The setting up of the new umbrella county staff pension scheme would have started with the drafting of a new law establishing the scheme to be enacted by Parliament (Senate). Thereafter, regulations for the new umbrella scheme would be drafted followed by the clearance by Pensions Secretary at the National Treasury and the registration with RBA and the Kenya Revenue Authority’s Income Tax Department and finally, the declaration of service under the county government to be “Public Service” for purposes of pensions by the Office of the President and Pensions Secretary.

According to the task force, the proposed administration of the new scheme would see a contribution of 7.5 per cent and 15 per cent of basic salary of employees and employers respectively.

In a meeting convened by Marianne Kitany, the Chief of Staff at the Office of the Deputy President on June 12 and attended by the Council of Governors, National Treasury, Commission on Revenue Allocation, Transition Authority, Lapfund, Laptrust and Directorate of Public Service Management, it was observed that the Council of Governors’ decision to adopt Laptrust (Umbrella) Pension Scheme as the scheme for counties was in violation of the recommendations of the technical committee.

Sources familiar with the Ms Kitany-led meeting told The Standard that it was proposed that the two schemes be merged under a solid legal framework on the background of an existing Bill before the Senate, which ought to be reviewed to reflect the desired design structure under the auspices of the Presidential Taskforce on Parastatal reforms.

It is the Attorney General’s stern position in December 12, last year, on the issue that could further dim the county government workers’ hope of having a new pension scheme soon. Prof Githu Muigai observed that the Laptrust board could not alter the status of the pension scheme by converting into a private company “pursuant to the provisions of the Companies Act, Cap 486”.

Prof Muigai said the conversion of the Kenya Local Government Officers’ Superannuation Fund to a company limited by guarantee pursuant to the Companies Act was illegal, arguing that the assets of the Laptrust defined benefits pension scheme were improperly vested in a private company, Laptrust Retirement Services Ltd.
A defined benefit pension plan is where an employer promises a specified monthly benefit on retirement that is predetermined by a formula, usually based on the employee’s earnings history, tenure of service and age.
In a confidential letter to all governors dated June 17, 2014, Transition Authority Chairman Kinuthia Wamwangi argues that the provision of pension benefits is a critical transition issue “which cannot be handled administratively”, hence the need to anchor it under an Act of Parliament.

Mr Wamwangi observed that the Council of Governors erroneously used the provisions of Section 132, which are subject to the transition clauses in the Act, to justify the adoption of Laptrust Retirement Fund as the county government pension scheme.

The Authority said provision of pension for county staff was both a transitional and a technical issue and not just about the merger of Lapfund and Laptrust.