Reprieve for universities in US$50 million pension arrears

Kenya’s public universities have been given six years to clear pension deductions owed to the country’s workers' retirement funds or face massive penalties and auctions.

The Retirement Benefits Authority (RBA), the pension’s sector regulator, said six universities were holding over US$50 million in unremitted funds, a debt that has nearly doubled over the past five years. RBA did not disclose the names of the six institutions bearing the largest burden.

However, the authority said the situation had major implications for the financial health of the institutions, warning that they risk losing assets such as land and homes to pension schemes which are demanding the funds.

The six-year ultimatum is seen as a major reprieve for the universities which have been threatened with closure over the issue.

2018 audit report

A 2018 audit report commissioned by the Ministry of Education showed that as at 30 June 2017, 26 universities had failed to remit a total of US$48 million in pension funds. The University of Nairobi, the country’s second largest by student numbers, was the worst hit with unpaid dues totalling US$13 million – over 20% of the total debt. Jomo Kenyatta University of Science and Technology, the fourth largest, was sitting on US$10 million.

Failure to regularise the deductions could expose the universities to huge penalties. The National Treasury, in a December 2018 memo to all government agencies, said defaulting institutions faced accrued interest on the unremitted contributions and a 5% penalty on the principal amount as per the Retirement Benefits Act (RBA) Cap 197.

Treasury Secretary Henry Rotich warned government ministries in December that all state corporations not remitting workers’ pension deductions were putting at risk their funding for the next financial year which starts in July.

“We are in talks with the affected universities with a view to resolving this matter and ensuring that they make timely deductions. Universities will have to cede the properties if they lack funds to clear the arrears,” said RBA chief executive Nzomo Mutuku last week.

Poor financial reporting

Educationists and analysts have blamed the state of affairs in part on poor financial reporting in universities.

Currently, the publication of financial performance reports for public universities takes as long as four years. In addition, none of the private universities in the country has ever made public their financials despite their handling millions of dollars annually in student fees.

In 2017, the government announced that universities would be required to publish regular financial performance reports as part of regulations aimed at lifting the veil of secrecy that has shrouded institutions’ financial status. This would put universities at the same level as firms listed on the Nairobi Securities Exchange which publish quarterly financial reports for investors, shareholders and the general public.

However, since then, little has changed.

'Crunch time’

Earlier this year, Ishmael Munene, a professor in the educational leadership department, Northern Arizona University, United States wrote in a commentary in University World News that Kenyan universities were facing “crunch time”.

“The prevailing financial crisis is the result of an interplay of two forces: macro-level policy reforms with system-wide ramifications, and micro-level institutional governance malpractice. The former encapsulates system growth, inequities in enrolment growth, quality enhancement strategies, the failure of the market model, and decreased state support, while the latter includes weak institutional systems of financial governance,” he wrote.

Most of the universities in Kenya have been facing financial difficulties over the past three years. A 2016 report by the Commission for University Education showed that the public universities are operating with at least US$100 million in budget deficits arising from poor financial management practices. In a February 2017 assessment of public universities, the country’s auditor general listed 11 as insolvent, including the University of Nairobi.

Adequate state funding has not been forthcoming for public universities, most of which are struggling to meet their financial obligations. For the current fiscal year, the National Treasury allocated US$1.03 billion to institutions of higher learning, up from US$961 million the previous year, but US$300 million lower than funds requested by universities.