The Supreme Court has struck down a law subjecting pension schemes sponsored by public entities and State corporations to the strict public procurement system, ruling that workers’ retirement savings are private trust funds and not public money despite being linked to State employers.
In a landmark ruling expected to reshape governance, investment operations and oversight across the country’s retirement benefits sector, the court held that pension schemes handling funds from government workers are not public entities subject to procurement laws.
The divided five-judge bench led by Chief Justice Martha Koome ruled that pension funds linked to public entities are not public money subject to the Public Procurement and Asset Disposal Act (PPADA).
The decision overturns earlier rulings by the High Court and Court of Appeal, which had upheld Section 2(o) of the PPADA and classified pension schemes of public institutions as public entities required to comply with State procurement procedures.
According to the court, pension savings cease being public funds once contributions are remitted into retirement schemes established as irrevocable trusts under the Retirement Benefits Act.
‘A pension fund sponsored by a public entity was not contemplated in the enactment of Article 227 of the Constitution to be an entity intended to undertake public procurement,’ the majority ruled.
The court declared Section 2(o) of the PPADA unconstitutional to the extent that it subjected pension funds to public procurement systems. It further held that pension schemes are private trusts and not State bodies performing public functions.
The ruling hands a major victory to the Association of Retirement Benefits Schemes, which argued that procurement rules increased administrative costs, slowed investment decisions and interfered with employees’ savings.