The government is preparing for a sharp rise in pension costs in 2026, as more public servants retire, wages increase, and social protection programmes expand. The trend comes after a steady rise in retirements over the past two years, which has already put pressure on the national budget.
According to the 2026 Budget Policy Statement, the growing pension bill is mainly driven by an increasing number of public servants leaving the workforce.
The Treasury expects retirements to accelerate across education, security services, and long-standing ministries, pushing the number of pensioners on the government payroll beyond 370,000 by 2026, up from about 340,000 in 2023. This surge is expected to inflate both monthly pension payouts and lump-sum gratuities.
“To sustain and strengthen the pension reforms, digitization, combined with an end-to-end Enterprise Resource Planning (ERP) solution, improves monitoring, reporting, and efficiency. An actuarial valuation of future pension obligations is underway,” said Treasury Cabinet Secretary John Mbadi in the BPS.
Treasury data shows that public service pensions, gratuities, and interest on related loans now account for nearly half of the funds in the consolidated account.
“Consolidated Fund Services (CFS) is taking about 48.5 percent of ordinary revenue in the 2025-26 financial year, up from just 16.4 percent in 2013-14. Pensions and interest payments have tripled their share of revenues to 8.7 percent and 39.8 percent from 2013-14 to 2025-26. This trend is expected to continue into 2026-27,” the BPS notes.
With projected revenue of Sh3.32 trillion, Sh1.6 trillion is likely to go to pension and interest repayments, with pensions alone expected to cost Sh278 billion.
State records show that 30,155 workers were expected to retire by June 2024, slightly dropping to 28,745 in 2025 and 26,500 in 2026. This is a marked increase from the Sh207 billion allocated for pensions in 2024-25.
Public Debt and Privatization Committee chair Abdi Shurie expressed concerns over rising pension and salary spending. He projected pension payments to reach Sh234.9 billion in 2026, up Sh11.75 billion from Sh223.15 billion in 2024-25.
“The growth is driven by a Sh6.55 billion rise in ordinary pension payments and a Sh7.74 billion increase in commuted pensions,” said Shurie.
However, delays in exchequer releases and system downtimes have created uncertainty for retirees. The Controller of Budget, Margaret Nyakang’o, revealed that of Sh131.92 billion in pensions processed in the nine months to March 2025, only Sh101.78 billion was released, leaving many claims unpaid.
Unlike discretionary spending, pensions are statutory obligations, meaning the government must pay them even when revenues fall. The BPS warns that this makes pensions a major source of fiscal pressure during slow revenue periods.
The rise in costs is also linked to recent public sector pay increases negotiated through collective bargaining, which raise pensionable earnings. Treasury officials estimate that each one percent rise in wages adds billions to long-term pension liabilities.
Additionally, inefficiencies in pension administration, such as delayed verification and incomplete records, have driven extra costs, with interest and legal fees exceeding Sh3 billion over five years.
The government has initiated reforms, including digitizing pension records and streamlining processing. “Digitisation and re-engineering of public sector pensions, including the Public Service Superannuation Scheme and non-contributory schemes, are underway to improve monitoring, ensure timely payments, and enhance sustainability,” the BPS states.
