Employers who collect statutory deductions from workers but fail to forward them to the appropriate schemes could soon face criminal liability, Treasury Cabinet Secretary John Mbadi has warned.
Speaking to the National Assembly’s Finance and National Planning Committee on Tuesday, Mbadi said the proposed legal amendments are intended to protect employees’ retirement funds and ensure that retirees receive their pensions without delays.
“We have made a legislative proposal to the Senate to criminalise non-remittances of pension benefits. We hope it will be fast-tracked,” Mbadi told the committee, emphasizing the urgency of the matter.
He added that it is unfair for employees to retire only to encounter difficulties accessing money that was legally deducted during their service. “It is not right for an employee to retire only to start waiting in vain for their benefits. Pension benefits are non-negotiable because somebody has offered services to this country and ought to enjoy their retirement with dignity.”
Currently, failing to remit deducted contributions is not a criminal offence, and many pension schemes are underfunded as a result. Mbadi highlighted that numerous institutions owe retirees billions of shillings, creating a serious threat to the security of workers’ benefits.
To address the problem, he suggested that institutions with unpaid pensions prepare supplementary budgets to allocate funds specifically for retirees. Mbadi also revealed that some employers divert deductions for other expenses instead of transferring them to the relevant schemes.
“It is illegal for employers to use deducted money for other purposes, such as paying suppliers. Even in cases where the money is deducted, they are never remitted, especially by the county governments,” he said, pointing to misuse by some public institutions.
Mbadi said the Treasury has written to the Head of Public Service, Felix Koskei, to push for full payroll integration for all public servants. This, he explained, would ensure that once deductions are made, the money goes directly to the intended schemes without being used elsewhere.
“We need to integrate the payroll so that once money has been deducted from employees, it cannot be used for any other purpose. If it is meant for NSSE, it goes there; if it is for pension, it goes there directly,” he stated.
Under the current Retirement Benefits Act, employers who fail to remit contributions are required by the Retirement Benefits Authority (RBA) to pay the outstanding amounts along with interest and a penalty of five per cent or Sh20,000, whichever is higher. The RBA may also temporarily stop deductions until contributions are cleared, or assist employees to join other schemes where their money will be properly managed.
Treasury figures show that government agencies and state corporations owed Sh6.09 billion in unremitted deductions as of June 30, with PAYE arrears growing by Sh4.3 billion to Sh23.39 billion.
Pension contributions that were deducted but not forwarded increased to Sh34.7 billion from Sh33.02 billion, while unpaid Social Health Insurance Fund contributions rose to Sh125.62 million from Sh76.45 million.
Meanwhile, NSSF arrears edged slightly higher to Sh641.58 million from Sh640.94 million. Reports submitted to the committee in February identified the Local Authorities Pensions Trust, University of Nairobi, and Moi University among schemes with the largest unremitted funds.
By the end of 2024, the Local Authorities Pensions Trust had Sh8 billion in unpaid contributions, University of Nairobi owed Sh8.3 billion, and the Local Authorities Provident Fund held Sh6.8 billion. Altogether, 47 schemes held Sh59,942,470,146 in unremitted funds.
Committee members demanded answers on the missing money, with Karachuonyo MP Adipo Okuome asking, “This money was deducted and is supposed to be paid to the rightful owner upon retirement. So where is it?”
The committee has summoned the Chief Executive Officers of institutions with outstanding contributions for further explanations, pressing for accountability and timely resolution.
