National Treasury Cabinet Secretary John Mbadi has issued a stern warning to employers, signalling an imminent crackdown on those who deduct statutory contributions from employees but fail to remit the money to the rightful pension schemes.
Appearing before the National Assembly Committee on Finance and National Planning, Mbadi revealed that he has already submitted amendments to the Retirement Benefits Act to criminalize the practice.
The CS said many employers routinely deduct pension and other statutory contributions from workers’ salaries but do not forward the funds to the relevant agencies, leaving employees vulnerable when they retire.
“We have made a legislative proposal to the Senate to criminalize non-remittances of pension benefits. We hope it will be fast-tracked,” Mbadi told the committee.
He stressed that no Kenyan should retire and find themselves chasing benefits that were deducted from their salaries for years.
“Pension benefits is non-negotiable because somebody has offered services to this country and ought to enjoy their retirement with dignity,” he added.
Under current law, failing to remit statutory deductions is not explicitly a criminal offence. Mbadi said this legal loophole has created an environment that perpetuates massive abuse, particularly among institutions that have accumulated billions of shillings in arrears of unpaid pension benefits. Most of these schemes, he noted, were grossly underfunded and could not afford to pay retirees as expected by law.
To address this crisis, Mbadi proposed that institutions holding massive pension arrears should prepare supplementary budgets so Parliament can allocate funds specifically for clearing overdue benefits.
He also revealed a troubling trend: some employers remit only part of the deducted funds and divert the rest to unrelated expenses such as paying suppliers.
“It is illegal for employers to use deducted money for other purposes such as paying suppliers,” Mbadi said, noting that county governments were among the worst offenders.
“Even in cases where the money is deducted, they are never remitted, especially the county governments.”
To curb further misuse, Mbadi told lawmakers that the National Treasury has written to Head of Public Service Felix Koskei requesting the integration of payroll systems for all public servants. This, he said, would ensure statutory deductions are ring-fenced and sent directly to the intended pension or NSSF accounts.
“We need to integrate the payroll so that once money has been deducted… it can’t be used for any other purpose,” he said.
Under the current Retirement Benefits Act, employers who fail to remit contributions must pay the outstanding amount with accrued interest within a specified period. They also face a penalty of either five per cent of unremitted contributions or KSh20,000, whichever is higher.
The Retirement Benefits Authority (RBA) may also issue a temporary cessation order stopping further deductions until compliance is restored, and can facilitate the transfer of affected members to alternative schemes if necessary.
In response to the rising pension crisis, the parliamentary committee has now summoned all Chief Executive Officers of institutions that owe employees billions in unpaid pension benefits, signaling heightened scrutiny and possible enforcement action.
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