Pension funds are pushing for issuance of a special Treasury bond to recover more than Sh71 billion in unremitted deductions, as mounting arrears by county governments and other agencies rattle the stability of retirement savings.

The proposal has emerged as one of several measures aimed at addressing the backlog of unpaid contributions, which industry players say has reached unsustainable levels and continues to undermine public confidence in the pensions sector.

CPF Group wants the Treasury to issue the bond on behalf of the 47 county governments, allowing pension schemes to be paid upfront while counties service the debt over time.

Read: List of shame of 47 institutions with Sh57bn in unremitted pensions

Speaking during the recent CPF annual general meeting, CEO Hosea Kili said the fund was engaging county governments, the Council of Governors and the Treasury to explore solutions, including the possibility of a bond issuance to settle the arrears.

CPF Financial Services Ltd Group Managing Director and CEO Dr. Hosea Kili.

Photo credit: Lucy Wanjiru | Nation Media Group

“The fund achieved a strong annual return of 10 per cent underscoring the resilience of this long-term investment. However, non-remittance of contribution by employers is a big challenge. I do not understand how a salary which is supposed to be paid together with the statutory deduction is paid but then the statutory deductions are not remitted,” said Mr Kili.

Read: County pension arrears hit Sh50bn as governors demand arrests

Retirement Benefits Authority (RBA) CEO Charles Machira said quasi-government agencies, including counties, owe more than Sh71.4 billion in unremitted pension deductions. The growing debt has piled pressure on pension schemes, even as the sector records strong asset growth.

Retirement Benefits Authority CEO Charles Machira.

Photo credit: Lucy Wanjiru | Nation Media Group

For instance, while the CPF Group, which manages pension funds for county workers, has continued to expand its membership and asset base, the failure by employers to remit statutory deductions is hurting the growth pace.

Mr Kili noted that the Laptrust scheme’s growth has been significantly slowed by the non-remittance problem, despite steady gains in assets.

The CoG chairman Ahmed Abdullahi however, took a tougher stance on the non-remittances issue, calling for criminal prosecution of officials responsible for failing to remit deductions that have piled up over time.

"It is criminal to deduct an employee’s money and fail to remit it. It is unfortunate that the duty bearers including payroll officers, auditors, county assembly and the Senate have failed to enforce remittance. In fact, county officials who oversee the payment of salaries and fail to remit deductions must be arrested," Mr Abdullahi said.

He warned that delays in remittances make it harder for counties to clear arrears, especially when obligations stretch beyond a year.

“The pension fund managers must ensure that the current county administrations do not end their term with arrears. Arrears which have built up in the past should be addressed separately. A payment plan should be developed for arrears which cannot be paid now,” Mr Abdullahi said.

Read: Mbadi tells of shame of Sh40bn unremitted pension by counties

Beyond the proposed bond, stakeholders also proposed other options such as debt-asset swaps and enforcing payment at source to curb future accumulation of arrears.

Intergovernmental Relations Technical Committee (IGTRC) CEO Kipkurui Chepkwony backed proposals to deduct pension contributions directly at source, arguing that it would improve compliance.

"The IGTRC is working with the Council of Governors, National Treasury and pension schemes to implement the proposed solution. The question we should ask is whether the funds should be deducted from the Treasury or at the County Revenue Fund accounts. Deduction at source would be the most viable solution,” Mr Chepkwony said.

However, CoG chief executive Mary Mwiti said existing laws do not permit deduction of pension contributions at source, leaving enforcement as the primary solution.

"I want to confirm the PFM Act does not allow for deduction of pension at source. So, what is left for us to ensure enforcement of the law. We must ensure that when salaries are paid then statutory deductions are remitted for every employee," she said.

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dmuchui@ke.nationmedia.com