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Circular from Treasury to Public Retirement Benefit Schemes

 

The Treasury released a circular dated 24th November 2010 to all accounting officers of government bodies giving various directives that should be complied with by all public retirement benefit schemes. Deadlines for compliance were also given in the Circular. The Scheme was already in compliance with some of the directives issued by Treasury but was not in compliance with the following two: -

 

a)         Rates of contribution

 

The circularrequired that employer’s contribution rate would not exceed two (2) times the employee’s contribution rate and the employer’s rate shall not exceed 20%. Before 1st January 2011, the employees of University of Nairobi had been contributing 7% of the basic salary while the employer was contributing 20% (15% - normal contributions, 2%-Additional Contributions, 3%- Death fund).

 

In order to comply with this directive,the Board of Trustees met the Executive Committees of the University of Nairobi Chapters of UASU and UNTESU who comprehensively discussed the matter and unanimously resolved that, members be requested to increase their monthly pension contributions from the rate of 7% to 10%, effective 1st January 2011. Employer’s contribution rate remained at 20% and all of it would be credited into the members account without being split as had previously been the practice.

 

In this directive, the government also required that the employee contribution rate shall not be less than 5% of the basic salary. The Scheme was fully compliant with this directive.

 

 

b)        Death in Service

 

The circular required as follows: -

 

  • Death in service benefits is provided for through an insurance policy purchased from a reputable insurance company.
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  • The death benefits shall not exceed three (3) times the annual basic salary.

 

The Scheme had been paying a death benefit of five (5) times annual basic salary [as per the Scheme’s Rule 3(a)], and the death benefits were being paid from the Scheme [as per the Scheme’s Rule 3(e)] therefore not compliant with the above directive. The directive was to be effective 1st July 2011.

 

Consequently the Board of Trustees amended the Trust Deed and Rules to provide for the new rate of three (3) times the annual pensionable (basic) salary.

 

The Trustees in liaison with the professionals attempted to source for an appropriate insurance company to cover the death in service benefits, however the insurance premiums payable were way too high compared with the average death in service benefits that were being paid out every year. The Board wrote a letter to Treasury requesting that the Scheme be allowed to pay out the death benefits from within because of the above reason, which was approved.

 

Members are therefore informed that effective 1st July 2011, the death in service benefit were reduced to three time’s the annual pensionable (basic) salary from the five times that was previously used to be paid by the Scheme.