KNH tops parastatals for 20 billion shillings in retirement debt
- The largest referral hospital in the East Africa region had historic unpaid bills amounting to 8.96 billion shillings in unpaid pension contributions as of the end of June 2021, according to the latest information.
- KNH has been followed by cash-strapped public universities and college colleges whose social benefit arrears – largely pension and staff health coverage – have been estimated at 6.52 billion shillings.
Kenyatta National Hospital (KNH) and public universities lead the list of state-owned companies that have accumulated Sh 20 billion in arrears in contributions to pension benefits and medical coverage, indicating a worsening crisis of liquidity.
The largest referral hospital in the East Africa region had historic unpaid bills amounting to 8.96 billion shillings in unpaid pension contributions as of the end of June 2021, according to the latest information.
KNH has been followed by cash-strapped public universities and college colleges whose social benefit arrears – largely pension and staff health coverage – have been estimated at 6.52 billion shillings.
Defaults are worsening the pension crisis and will expose hundreds of workers to uncertain retirement at a time when the government’s resource envelope to shoulder the added burden of pensions runs out.
The disclosure comes at a time when Treasury Secretary Ukur Yatani has raised the red flag in the face of growing defaults to honor staff pension obligations among public entities.
“As a result, these state-owned companies have accumulated huge arrears in staff pension contributions contrary to existing laws and government policies,” Yatani said in the latest circular to parastatals.
“Boards of directors are reminded of their responsibility to protect the interests of retirees and to oversee the effective functioning of these plans. “
The Treasury accordingly ordered parastatals to include pension contributions in their budgets and to submit monthly reports on the status of staff pension contributions.
Employers are, under the Retirement Benefits Act of 2020, penalized with five percent of unpaid contributions or 20,000 shillings, whichever is greater, for late payment within seven days of receipt of the ‘opinion.
The law also allows employers to submit a catch-up plan upon payment of the penalty, indicating the period within which the contributions and accrued interest will be offset.
The data, based on budget reports from ministries and state agencies, shows that KNH and universities accounted for 77.38 percent of state-owned enterprises’ 20 billion shilling social benefit arrears for the fiscal year ended June 2021.
This is a marginal decrease from unpaid bills of 22.17 billion shillings in the year through June 2020 owed to the National Social Security Fund (NSSF) and the National Social Security Fund. hospital insurance (NHIF) as well as staff pension plans.
KNH claims that the 191 million shillings she owed the NSSF last June stemmed from arrears in contributions between April 2001 and November 2009, when she tried unsuccessfully to be exempted from statutory pension deductions because she had a “better pension plan”.
Hospital accuses the Ministry of Labor of delaying the approval or rejection of its exemption request for 10 years until the court orders it to issue instructions after the NSSF took the matter to court in 2008 .
“There was an assumption on the part of the hospital that the exemption would be granted,” explains KNH in its budget report.
“The court ordered the minister to issue directives and, in 2011, the ministry [at the time headed by John Munyes] gave a directive denying the exemption request on the grounds that the NSSF was a universal pillar of social security and was therefore mandatory. “
The remaining 8.77 billion shillings of KNH pension arrears relate to the defined benefit (DB) pension scheme closed to new members.
“From fiscal year 2015/16 to fiscal year 2019/20, the hospital paid 100 million shillings per year for the deficit in the scheme, which is not enough to fill it,” says the KNH. “The hospital continued to engage the Department of Health for more funding.”
Kenya Medical Training College also had pension arrears totaling 2.27 billion shillings during the fiscal year ended June 2021.
This includes 730 million shillings owed to the NSSF in penalties for non-payment of 60 million shillings in contributions between January 2002 and March 2011, and 1.54 billion shillings in deficit in the staff pension scheme.
KMTC says the NSSF contribution defaults occurred at a time when the RBA granted it an exemption to stop statutory deductions after forming its own defined benefit pension plan.
But that was overturned by then Labor Minister John Munyes in 2009 by ordering employers to remit contributions to the NSSF as required by law, except with the minister’s exemption.
KMTC then converted the scheme to a defined contribution scheme.
“The RBA is demanding a Corrective Action Plan (RAP) for the settlement (of 1.54 billion shillings in the staff pension scheme). Given the recent staff retirements, the scheme soon finds it difficult to meet its pension payment obligations to retirees, “says KMTC.
Other notable defaulters of contributory social benefits include the National Museums of Kenya (Shs 169.76 million), parastatals in the Department of Water, Sanitation and Irrigation (Sh 1.49 billion ) as well as those of the Broadcasting Department (542 million shillings).