Nyakang’o: Pension Bill could add Sh35bn to county budgets

Controller of Budget Margaret Nyakang’o has cautioned Parliament against approving the proposed County Governments Retirement Scheme Bill, 2026, without stronger financial safeguards, warning that the legislation could place additional pressure on county budgets already strained by employee compensation and outstanding statutory obligations which seeks to establish a retirement benefits framework for county government employees.

The proposed legislation provides for pension contributions, the administration of retirement benefits and mechanisms for recovering unpaid contributions. It also proposes measures to protect pension remittances and hold county governments accountable for their obligations.

In her submission to the committee, Nyakang’o warned that the proposed employer contribution rate could significantly increase county expenditure without a clear assessment of the financial implications.

“The sponsor rate has a ceiling but no floor, and the Memorandum contains no costing,” Nyakang’o told the lawmakers.

Her office estimated that a 15 percent employer contribution could add approximately Sh35 billion in annual spending, raising questions about whether counties could sustain the additional obligation without affecting other essential services.

According to the submission, counties spent Sh235.96 billion on employee compensation in the 2025-26 financial year, while employee costs were already consuming a substantial share of county revenues.

Nyakang’o urged lawmakers to phase in the employer contribution over no more than three financial years for members not already covered by an employer-funded retirement scheme.

She also raised concerns about provisions that impose interest and penalties on delayed pension remittances, arguing that the proposed enforcement framework could shift the financial consequences of administrative failures onto ordinary citizens.

“Compounding interest at 5% per month, a second interest clause, fines, and summary recovery against the County Revenue Fund would shift the cost of default to county residents rather than to the officers responsible,” Nyakang’o said.

The Controller of Budget proposed replacing the interest provisions with a single charge based on the Central Bank Rate plus a modest margin, calculated on a simple and capped basis. She also called for personal accountability for accounting officers responsible for wilful default, subject to due process.

The submission further highlighted concerns about existing pension liabilities and arrears that could be transferred to the proposed scheme without independent verification.

As of June 30, 2026, counties had reported Sh100.24 billion in outstanding salary arrears and statutory deductions, according to the submission. Of this amount, Sh52.45 billion relating to county executives was more than three years old, while Nairobi City County accounted for Sh44.92 billion.

Nyakang’o recommended an independent actuarial valuation and a special audit by the Auditor-General before transferring existing liabilities to the new scheme. She also proposed incorporating verified arrears into county pending-bills payment plans.

To strengthen oversight, her office called for quarterly reports detailing contributions due and received, outstanding arrears, interest and penalties, and enforcement actions. The reports would be submitted to the Retirement Benefits Authority, the Controller of Budget and county assemblies.

The submission also raised legal concerns over the need to respect constitutional requirements governing county governments and ensure adequate public participation. Nyakang’o urged lawmakers to consult widely and address questions about the division of responsibilities between the national and county governments.

The proposed Bill now faces the task of balancing the protection of county employees’ retirement benefits with the financial capacity of devolved governments.

Nyakang’o said her office was ready to help lawmakers refine the legislation.

“The COB urges the Committee to adopt the proposed amendments and remains available to support the Committee in its consideration of the Bill,” Nyakang’o said in the submission.