The government is bracing for a sharp increase in pension spending in 2026, as a growing number of retirees, higher public sector wages, and expanding social protection programs push retirement-related costs to new highs.
This comes at a time that an increasing number of retirees in the public service in the past two years has already strained the exchequer
In the 2026 Budget Policy Statement, the National Treasury attributes the rising pension bill largely to an increase in the number of public servants exiting the workforce.
Treasury projections show that retirements are accelerating across the civil service, particularly in education, security services, and long-established ministries.
As a result, the number of pensioners on the government payroll is expected to exceed 370,000 by 2026, compared with about 340,000 in 2023, driving up monthly pension payouts and lump-sum gratuities.
“To sustain and strengthen the pension reforms, digitization, combined with an end-to-end Enterprise Resource Planning (ERP) solution, improves monitoring, reporting, and efficiency. An actuarial valuation of future pension obligations is underway,” said National Treasury Cabinet Secretary John Mbadi in the BPS.
Treasury data shows that expenditure on public service pensions, gratuities, and interest on loan repayments will consume half of the funds in the consolidated account.
“Consolidated Fund Services (CFS) is taking about 48.5 percent of ordinary revenue in the 2025-26 financial year, up from just 16.4 per cent in 2013-14, pensions and interest payments tripling their share of revenues to 8.7 percent and 39.8 percent from 2013-14 to 2025/26. This trend is expected to remain the same in the 2026-27 fiscal period,” the BPS notes.
With a projected revenue collection of Sh3.32 trillion, this means that just about Sh1.6 trillion will be channeled to pension and interest repayments. A further breakdown shows that pension alone could consume Sh278 billion.
State data shows 30,155 workers were expected to leave work by end of June 2024, with the number slightly falling to 28,745 in 2025 and 26,500 in 2026.
This is an increase from the Sh207 billion that the national treasury had earmarked to pay in the year 2024-25.
Pensions are now among the fastest-growing components of recurrent expenditure, alongside wages, interest payments and transfers to counties.
Together, these items continue to absorb a large share of ordinary revenue, limiting fiscal space for development spending.
Public Debt and Privatization Committee chair Abdi Shurie, had earlier raised concerns over government pension and salary expenditures for the 2026.
However, projections by the Mbalambala MP were a bit lower, he noted that pension payments were projected to reach Sh234.9 billion, marking an increase of Sh11.75 billion from Sh223.15 billion in 2024-2025 financial year.
“The growth is driven by a Sh6.55 billion rise in ordinary pension payments and a Sh7.74 billion increase in commuted pensions,” said Shuriye.
However, the MP noted that the efficiency of pension disbursements continues to face challenges, citing delays in exchequer releases and intermittent system downtimes.
Ongoing delays and repeated system downtimes have left retirees in financial uncertainty, with the Controller of Budget revealing that the Treasury failed to allocate Sh30.14 billion in processed pension payments in the nine months to March 2025.
In her latest report, The CoB Margaret Nyakang’o noted that ordinary and commuted pensions processed for payment during the period totalled Sh131.92 billion.
However, the exchequer only released Sh101.78 billion, leaving a large portion of claims unfunded.
Unlike discretionary spending, pension payments are statutory obligations, meaning the government must honour them regardless of revenue performance.
Treasury in the BPS warns that this rigidity makes pensions a key driver of fiscal stress during periods of slow revenue growth.
The BPS links part of the pension increase to recent public sector salary adjustments negotiated through collective bargaining agreements. These pay rises raise final pensionable earnings, directly increasing retirement benefits.
It is estimated that each one per cent increase in public sector wages raises long-term pension liabilities by billions of shillings, an effect that becomes more pronounced as larger cohorts reach retirement age.
The BPS also flags inefficiencies in pension administration as a contributor to rising costs. Delayed verification of retirees, incomplete records and court-awarded penalties on unpaid claims have led to additional fiscal losses.
The Treasury estimates that interest and legal costs linked to delayed pension payments have exceeded Sh3 billion over the past five years, prompting renewed efforts to digitise pension records and streamline processing.
“In the insurance and pensions sub-sector, the government has advanced reforms aimed at expanding coverage, strengthening prudential regulation, and improving operational efficiency,” the BPS notes.
“Digitization and re-engineering of public sector pensions, including the Public Service Superannuation Scheme (PSSS) and non-contributory schemes, are underway to improve monitoring, ensure timely payments, and enhance sustainability,”
Beyond formal public service pensions, the government is also expanding non-contributory retirement support through social protection programmes.
The BPS shows that cash transfers to older persons will rise to Sh48.3 billion in 2026-27, up from Sh41.2 billion in 2024-25, reflecting both higher coverage and inflation-related adjustments.
Under the programme, eligible elderly citizens receive a monthly stipend funded directly by the Exchequer.
Treasury data shows that beneficiary numbers are projected to increase from 1.2 million to nearly 1.4 million seniors by 2026, driven by demographic changes and poverty targeting reforms.
Kenya’s demographic profile is gradually shifting, the population aged 60 and above will grow at more than twice the rate of the working-age population over the next decade, increasing demand for retirement income support and healthcare.
This trend, combined with longer life expectancy, means pensioners are remaining on the payroll for longer periods, raising lifetime benefit costs.
Treasury warns that without structural reforms, age-related spending could rise faster than economic growth, increasing pressure on taxes or borrowing.
To address long-term sustainability, the BPS is proposing that the government accelerate the transition of public servants into contributory pension schemes, where both employees and the employer make monthly contributions during active service.
However, the BPS cautions that the reform will not yield immediate fiscal relief. During the transition period, the government must continue paying pensions under the old non-contributory system while also contributing to the new schemes.
Treasury estimates that government pension contributions under the contributory framework will exceed Sh70 billion annually by 2026, creating a temporary “double burden” on the budget.
“This transition cost is unavoidable but necessary to stabilise pension obligations over the long term,” the BPS notes.
by JACKTONE LAWI
