• 10 Marks

PSA&F – Nov 2019 – L2 – Q3a – Pension Accounting in the Public Sector

Identifies two categories of persons exempted from the contributory pension scheme and discusses three deficiencies of the scheme.

In accordance with Section 2(1-2) of the Pension Act 2014, both the public and private sectors’ pension schemes are now contributory. The employers and employees are expected to contribute a minimum of 18% in aggregate towards the retirement of the employees. The rate is subject to review as may be agreed between the employer and employees.

Required:

  • Identify TWO categories of persons exempted from the scheme.
  • Discuss THREE deficiencies of the scheme.
  • Categories of Persons Exempted from the Scheme:
    1. Judicial Officers: Judges and justices are exempt from the contributory pension scheme due to their unique position and service conditions.
    2. Members of the Armed Forces and Security Agencies: Personnel in the military, police, and other security forces are exempted, given the special nature of their duties.
  • Deficiencies of the Contributory Pension Scheme:
    1. Administrative Bottlenecks: The processing and management of pension funds can be slow due to bureaucratic hurdles, causing delays in the disbursement of pensions to retirees.
    2. Lack of Awareness: Many employees and employers are not fully informed about the workings of the scheme, leading to underpayment or non-compliance with the contribution requirements.
    3. Insufficient Contributions: The aggregate 18% contribution might be inadequate for some employees to sustain their post-retirement life, particularly in inflationary environments.
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