NAIROBI, Kenya — The Supreme Court has ruled that pension funds linked to public institutions are private trusts and cannot be treated as public entities under government procurement laws.
The decision, delivered on May 15, nullifies Section 2(o) of the Public Procurement and Asset Disposal Act (PPADA), which had subjected such schemes to public procurement rules.
Court overturns lower decisions
The ruling allows an appeal by the Association of Retirement Benefits Schemes and overturns earlier findings by both the High Court and the Court of Appeal.
The lower courts had previously held that pension funds qualify as public bodies and should therefore comply with the PPADA.
However, the Supreme Court disagreed. It held that pension schemes remain private arrangements between employers and employees, even where public institutions are involved.
“The mere fact that an entity performs functions of public interest does not, without more, make it a public entity,” the court stated.
Pension funds are classified as private trusts
The judges emphasized that pension schemes are established under irrevocable trusts governed by the Retirement Benefits Act.
They further noted that contributions made by employees and employers become private once deposited into the scheme.
In addition, the court observed that trustees and administrators are not public officers. They are not paid from the Consolidated Fund and operate independently under trust deeds.
As a result, the court found no legal basis to treat pension funds as state organs or public bodies subject to procurement regulations.
Procurement law struck down in part
It declared the provision unconstitutional to the extent that it subjected pension schemes to Article 227 of the Constitution.
Article 227 requires state organs to follow fair, transparent, and competitive procurement processes when spending public funds.
However, the court said applying the same framework to privately held retirement savings was not constitutionally justified.
Dissenting opinion
Justice Njoki Ndung’u issued a dissenting opinion.
She argued that pension schemes serving public workers perform functions of public importance and should fall under public procurement oversight.
Ndung’u said the level of state regulation and the social importance of retirement benefits justify their inclusion under public law frameworks.
Legal impact
The ruling sets a major precedent in Kenya’s financial and constitutional law.
It clarifies that pension funds, even those linked to public employers, are fundamentally private trusts. Therefore, they are not subject to procurement rules designed for public spending.
