Employers Risk Criminal Charges for Withholding Workers’ Statutory Deductions, Treasury Warns

Nairobi, Kenya - In a bold move to safeguard employees' retirement rights, Treasury Cabinet Secretary John Mbadi has announced plans to amend the Retirement Benefits Act, turning the failure to remit statutory deductions into a punishable criminal offense. This proposal comes amid growing concerns over billions of shillings in unforwarded contributions that leave retirees in financial limbo, robbing them of the dignified post-work life they deserve.

Mbadi, appearing before the National Assembly's Departmental Committee on Finance and National Planning, stressed the urgency of these changes. He described the current practice as unacceptable, where workers contribute diligently through payroll deductions only to find their funds diverted or delayed indefinitely. "It is not right for an employee to retire only to start waiting in vain for their benefits," Mbadi remarked. "Pension benefits are non-negotiable because somebody has offered services to this country and ought to enjoy their retirement with dignity."

Under the existing framework of the Retirement Benefits Act, employers face no explicit criminal penalties for non-remittance. Instead, the Retirement Benefits Authority (RBA) treats it as an ethical duty, imposing administrative measures like fines. These include a penalty of five percent on the unremitted amount or Sh20,000, whichever is greater, due within seven days of a notice. The RBA can also halt further deductions temporarily and assist affected workers in transferring to alternative schemes. However, these steps often fall short, as employers continue to misuse the funds for operational needs, such as settling supplier bills.

Mbadi highlighted the widespread illegality of such diversions, particularly in public sector entities like county governments. "It is illegal for employers to use deducted money for other purposes, such as paying suppliers," he explained. "Even in cases where the money is deducted, they are never remitted." This practice has led to severe underfunding of pension schemes, forcing retirees to endure prolonged waits for payouts that should arrive promptly upon retirement.

To combat this, the National Treasury has reached out to the Head of Public Service, Felix Koskei, advocating for complete integration of public servants' payroll systems. The goal is to create a seamless process where deductions are automatically routed to their intended destinations. "We need to integrate the payroll so that once money has been deducted from employees, it cannot be used for any other purpose," Mbadi elaborated. "If it is meant for the National Social Security Fund (NSSF), it goes there; if it is for pension, it goes there directly." This technological safeguard would eliminate opportunities for tampering and ensure contributions flow directly to bodies like the NSSF, Social Health Insurance Fund (SHIF), and pension trusts.

For institutions grappling with massive pension backlogs, Mbadi suggested a practical remedy: submitting supplementary budgets to Parliament for dedicated allocations to clear arrears and support retirees. This approach aims to bridge the funding gap without further burdening operational budgets.

The scale of the problem is staggering, as revealed by recent Treasury data for the year ending June 30, 2025. Government agencies and state corporations racked up Sh6.09 billion in unremitted statutory deductions. Unpaid pay-as-you-earn (PAYE) taxes ballooned by Sh4.3 billion to reach Sh23.39 billion. Pension contributions not forwarded climbed to Sh34.7 billion from Sh33.02 billion the previous year. SHIF arrears surged to Sh125.62 million from Sh76.45 million, potentially jeopardizing employees' access to essential healthcare services. Meanwhile, NSSF outstanding amounts edged up slightly to Sh641.58 million from Sh640.94 million.

A deeper analysis of 47 pension schemes paints an even grimmer picture as of December 31, 2024. The Local Authorities Pensions Trust alone held Sh8 billion in unremitted funds, while the University of Nairobi Pension Scheme owed Sh8.3 billion. The Local Authorities Provident Fund accounted for Sh6.8 billion in similar shortfalls. In total, these schemes were sitting on Sh59.94 billion in withheld contributions, a sum that rightfully belongs to workers who have toiled for years.

Committee members expressed outrage over these revelations, demanding stricter accountability. Karachuonyo MP Adipo Okuome probed the whereabouts of these funds during the hearing: "This money was deducted and is supposed to be paid to the rightful owner upon retirement. So where is it?" In response, the committee has summoned chief executive officers from the most indebted institutions to explain their lapses and outline recovery plans.

The proposed legislative tweaks, already tabled before the Senate, seek fast-tracked approval to deter future violations. Mbadi urged lawmakers to prioritize the bill, warning that without swift action, the cycle of delayed benefits will persist, eroding trust in the pension system and leaving vulnerable retirees exposed.

This crackdown underscores a broader push for fiscal responsibility in Kenya's public and private sectors. As the nation grapples with economic pressures, protecting workers' hard-earned savings remains a cornerstone of social equity. Employers now face a clear message: remit deductions on time or risk the full weight of the law. For millions of Kenyan workers, this could mean the difference between a secure retirement and years of hardship.