Kenya Public Pension Scheme Require Overhaul

In Kenya, pension expense take a huge percentage of public expenditures. Yet, the government is making payments to people who are able bodied, but not contributing to public coffers. Such regime of social security is outdated. Public pension schemes require immediate overhaul
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Photo: Courtesy
It is the German Chancellor Otto von Bismarck who introduced the world’s first public pension system in 1870. At the time, the retirement age was 70, and the average life expectancy was 45.
 
Today, in case of Europe, the average European retires at 65 and lives until he or she is at least 80. In Kenya, retirement age is 60 and average life expectancy is 65 years.
 
At the time Otto Von was introducing pensions as social security forms, expectation was very few workers would live to enjoy it. It is no longer the case, as people live longer. This where the problem lies.
 
Having overly generous pension benefits are destabilizing public finances, compromising the inter-generational social contract, and creating discontent. This problem has to be fixed.
 
The standard way to fix it is is by way of raising the retirement age or cut pension benefits. Each of these measures comes at a cost. The longer that older workers remain in the labor force, the more exposed they are to technological unemployment.
 
Cutting benefits, as Greece’s experience during the euro crisis showed such can force retirees to reduce their consumption, causing recessionary pressures.
 
In stagnant economies, where youth wait for attrition or retirement to be absorbed into the workforce, raising retirement age may fuel further discontent. There are two ways out.
 
One, everybody should contribute for their pension benefits, and this should no longer be a government role. This could be actualized by scrapping the defined benefit schemes in public service and replacing it with defined contribution benefit schemes.
 
Second, even though most seniors are ill-suited for today’s fast-changing labor market, they still have the skills, wisdom, and experience to contribute to society.
 
As such, governments should start treating them as a segment of the workforce, rather than as a burden on public spending and economic growth.In such case, eligibility for pension benefits should be pegged on performing some community work.
 
Such community work would have benefits for pensioners, too. Typically, idle retirement leads to a sharp decline in one’s cognitive skills, whereas a policy of active retirement would encourage older people to pursue fulfilling new challenges.
 
The government should not continue paying people who are able bodied free money. They should equally work and deliver something for it. For this, public pension has to be overhauled.

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