| dc.description.abstract | Population ageing requires huge public expenditures for the aged on pensions, health and medical care, and influences government budgets, pension funds, and eventually long-term fiscal sustainability. The problem of an ageing population becomes more serious if it is associated with the pay-as-you-go (PAYG) defined-benefit pension scheme.
The aim of the study was to determine the optimal levels of pension contribution and to determine the implicit tax rate of the civil service pension scheme in Kenya. In achieving these two objectives, the study applied historical data for the wages and pensions, which was obtained at Ministry of Finance. In computing the implicit tax rate and the optimal level of contribution, the key variables included periodic contribution rates, wages earned while working, pension benefits received while in retirement, and the 91-Day Treasury bill rate.
The key findings revealed that the expenditure on pensions has been growing at a higher rate than the growth in national expenditure. This justifies then need to change the current PAYG regime to a contributory scheme. The implicit tax rates were found to be negative. As a result, the study proposed an average contribution rate of 21.07% of the wages earned towards financing the pension bill.
A general conclusion from the empirical analysis was that unless civil servants contribute to retirement scheme, as do private sector workers, the Government's pension fund will remain in deficit as the number of retirees continues to grow. | en |
