REDEFINING PUBLIC MONEY: WHY KENYA’S SUPREME COURT FREED PUBLIC PENSION SCHEMES FROM PROCUREMENT LAWS.
The Supreme Court of Kenya has delivered a landmark judgment redefining the legal character of pension funds sponsored by public entities. In Association of Retirement Benefits Schemes v Attorney General & 3 others [2026] KESC 36 (KLR), the Court held that such pension schemes are private trust arrangements and are not subject to public procurement laws. This article examines the Court’s reasoning, the meaning of public money under Article 227 of the Constitution, and the implications of the decision for pension trustees, employees, public institutions and regulatory oversight.
By Faith Moraa
REDEFINING PUBLIC MONEY: WHY KENYA’S SUPREME COURT FREED PUBLIC
PENSION SCHEMES FROM PROCUREMENT LAWS.
For nearly a decade, public sector retirement benefit schemes in Kenya operated under a suffocating regulatory paradox. They were treated as public entities under the Public Procurement and Asset Disposal Act (PPADA) of 2015, yet their financial livelihood came entirely from individual employee earnings and employer contributions held in trust.
On May 15, 2026, the Supreme Court of Kenya issued a landmark 4:1 majority judgment in Association of Retirement Benefits Schemes v. Attorney General & 3 Others (Petition E017 of 2024) [2026] KESC 36 (KLR). The apex court declared Section 2(o) of the PPADA unconstitutional, officially untying public-sector pension funds from the rigid constraints of statutory public procurement rules.
BACKGROUND FACTS
When the Public Procurement and Asset Disposal Act (PPADA) was enacted in 2015, Section 2(o) listed a “pension fund for a public entity” among the public bodies required to comply with state procurement laws. Under this framework, pension schemes sponsored by state corporations and public institutions were required to conduct all service procurements—such as hiring fund managers, custodians, administrators, and auditors—through cumbersome public
tendering systems.
The Association of Retirement Benefits Schemes (ARBS) challenged the law. They argued that pension schemes are private trusts created under Section 23 of the Retirement Benefits Act (RB Act). Because these funds consist of earned employee remuneration and matching contributions, they represent private property held in trust for workers, not public money drawn from the exchequer.
Both the High Court and the Court of Appeal dismissed ARBS's petitions. Lower courts held that because these schemes were established by public bodies and regulated by government authorities, they performed a public function and fell squarely within state oversight. ARBS elevated the fight to the Supreme Court.
The Key Legal Battlegrounds
The Supreme Court focused on a central constitutional question: Does the origin of the fund or the status of the employer determine whether money is "public"?
1. Public Money vs. Private Trust Property
Article 227 of the Constitution governs public procurement, requiring state organs and public entities to procure goods and services through fair, transparent, and competitive systems.
The majority court led by Chief Justice Martha Koome, Deputy Chief Justice Philomena Mwilu, Justice Isaac Lenaola, and Justice William Ouko clarified that once employer and employee contributions hit a worker's pension account, they cease to be public funds. The money belongs exclusively to the scheme members, held in trust by independent trustees. Because these funds are not appropriated by Parliament through the Consolidated Fund, they do not qualify as public funds under Article 227.
2. The Role of Trustees and Service Providers
The Court observed that pension fund trustees, custodians, and fund managers do not execute governmental duties, nor are they paid out of public revenue. Their mandate is governed strictly by trust deeds and the Retirement Benefits Act, not the Public Procurement Authority.
3. State Regulation vs. State Ownership
The apex court drew a clear line between regulatory oversight and public ownership. The fact that the state regulates pension schemes via the Retirement Benefits Authority (RBA) does not transform private trust money into state funds.
The Dissenting View of Justice Njoki Ndungu:
Justice Njoki Ndungu delivered the sole dissenting opinion, arguing that public-sector pension schemes perform vital public duties and serve broader societal goals. She maintained that subjecting them to the PPADA aligns with public interest and constitutional safeguards against financial mismanagement.
The Supreme Court’s striking down of Section 2(o) of the PPADA introduces key operational changes for public sector retirement funds:
Operational Agility: Trustees of public-sponsored schemes can now source fund managers, actuaries, and administrators based on performance, specialized skill, and fiduciary value rather than navigating long, bureaucratic public tendering cycles.
Enhanced Fiduciary Independence: Trustees are restored to their core mandate under trust law acting purely in the best financial interest of the scheme’s beneficiaries without conflict from public procurement rules.
Clearer Legal Boundaries: The ruling draws a clean boundary between public expenditure governed by public finance law and private, employee-owned savings governed by trust law.
The Supreme Court's ruling in Association of Retirement Benefits Schemes v Attorney General & 3 Others [2026] KESC 36 (KLR) marks a decisive moment for Kenya's financial legal framework. By distinguishing between state regulation and state ownership, the Court safeguarded worker's retirement savings from unnecessary bureaucratic delays while respecting
the sanctity of private trusts. For trustees and fund managers across the public sector, the decision offers clarity and efficiency in managing retirement benefits.