The Supreme Court has ruled that pension funds linked to public institutions are not public entities and struck down a law that had subjected them to government procurement rules.
In a decision delivered on May 15, the court allowed an appeal by the Association of Retirement Benefits Schemes and nullified Section 2(o) of the Public Procurement and Asset Disposal Act (PPADA), which had classified such funds as public bodies.
Supreme Court Declares Pension Funds Private
The case began with a challenge by stakeholders in the retirement benefits sector, who argued that pension funds are private trusts and should not be subject to public procurement laws.
Both the High Court and the Court of Appeal dismissed the case, holding that the funds were public bodies subject to oversight under the PPADA.
However, the Supreme Court set aside those rulings, finding that the classification was inconsistent with the Constitution.
It held that pension funds, even those associated with public employers, are mainly private arrangements between employers and employees for retirement savings.
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“The mere fact that an entity performs functions of public interest does not, without more, make it a public entity,” the court stated, outlining a test that considers establishment, funding, control, and legal structure.
Pension Funds are Deemed Private Trusts
In its reasoning, the court emphasized that pension schemes are structured as irrevocable trusts under the Retirement Benefits Act.
Contributions made by employees and employers, the court affirmed, are held for the exclusive benefit of members and cease to be public funds once deposited.
The judges noted that trustees and administrators of such funds are not public officers, are not paid from the Consolidated Fund, and act independently under trust deeds.
As a result, the court found no similarity between pension funds and state organs or public entities listed under procurement law, which are typically financed through public money and directly controlled by the government.
Supreme Court Invalidates Extension of Procurement Rules to Private Pension Funds
The Supreme Court said Parliament went too far by applying public procurement rules to pension funds through Section 2(o) of the PPADA.
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Further, the Court declared the provision void to the extent that it subjects public-entity-sponsored pension funds to procurement requirements under Article 227 of the Constitution.
Article 227 governs how state organs and public entities spend public funds, requiring fairness, transparency, and competitiveness in procurement.
The court found that applying these rules to privately held pension savings fell outside the constitutional scope.
Justice Ndung’u Dissents, Argues Pension Schemes Qualify as Public Entities
Justice Njoki Ndung’u dissented, arguing that pension schemes serving public employees perform functions of public importance and should be treated as public entities.
Ndung’u said the level of state regulation and the social importance of retirement benefits mean pension schemes should be included under public procurement law.
The court allowed the appeal, set aside the Court of Appeal decision, and directed each party to bear its own costs.
The ruling ends a long-running legal dispute and sets a precedent on how pension funds are classified under Kenya’s constitutional and financial system.
