Pension Funds Are Not Public Entities: The Supreme Court Draws the Constitutional Line on Public Procurement
Association of Retirement Benefits Schemes v The Attorney General & 3 Others Supreme Court of Kenya | SC Petition No. E017 of 2024 Coram: Koome CJ & P, Mwilu DCJ & VP, Lenaola, Ouko & Njoki Ndungu SCJJ Delivered: 15th May 2026
Overview
Few legal questions touch the financial security of ordinary workers as directly as the one resolved in this case: whether pension funds established by public employers are public entities bound by Kenya’s public procurement regime. The Supreme Court’s answer -a clear majority “no” -has immediate and far-reaching consequences for the retirement benefits industry, redraws the constitutional boundaries of public procurement, and strikes down a provision of an Act of Parliament. There is also a notable dissent by Njoki Ndungu SCJ, which merits attention in its own right.
Background and Facts
The appellant, the Association of Retirement Benefits Schemes, is an umbrella body representing stakeholders in Kenya’s retirement benefits sector, including pension schemes, employers, and service providers. Its grievance arose from Section 2(o) of the PPADA, enacted in 2015, which included “pension fund for a public entity” among the twenty categories of entities defined as public entities to which the Act’s procurement framework applies.
The practical effect of Section 2(o) was to oblige pension funds sponsored by public sector employers to comply with the full machinery of public procurement law; procurement planning, open tendering, public advertising, ministerial approvals, and the attendant administrative infrastructure. The appellant contended that this imposed crushing compliance burdens on funds that exist primarily to hold private, trust-based savings on behalf of employees. After efforts to have the provision reviewed through the Public Procurement Regulatory Authority (PPRA) came to nothing, the appellant turned to the courts.
The appellant’s central legal argument was fourfold: first, that pension funds are registered as irrevocable trusts under Section 23 of the Retirement Benefits Act (RB Act) and are therefore distinct from the public entities that sponsor them; second, that the funds are neither funded by the government nor controlled by the State; third, that Section 2(o) discriminated against pension funds of public entities relative to their private sector counterparts, in violation of Article 27 of the Constitution; and fourth, that the provision infringed members’ property rights under Article 40, by treating privately earned savings as public money and compelling their expenditure on compliance.
Journey Through the Courts
At the High Court, Justice Mativo (as he then was) dismissed the petition in March 2017. Applying the test developed by the Indian Supreme Court in International Airport Authority (R.D. Shetty) v The International Airport Authority of India & Ors {1979} 1 S.C.R. 1042, which examines criteria such as the performance of functions of public importance, monopoly characteristics, and the presence of deep and pervasive State control, the High Court concluded that pension schemes of public institutions satisfied those criteria. It also relied on Section 3(1) of the Interpretation and General Provisions Act, which defines a public body to include any entity performing functions of a public nature, and pointed to the regulatory and ministerial oversight mechanisms in the RB Act as clear indicators of State control. It found nothing unconstitutional about Section 2(o).
At the Court of Appeal, a bench of Karanja, Makhandia and Laibuta JJ.A upheld that decision in April 2022. The appellate court agreed that pension funds of public entities, though not directly funded from the public exchequer, operated under statutory regulation, served members drawn from public institutions, and performed functions of a public nature under the RB Act. It further held that Section 2(o) was constitutional and that no violations of Articles 27, 19(2), or 40 had been established. Crucially, however, the Court of Appeal went beyond the specific question of pension funds for public entities and declared that all retirement benefits schemes are public entities – an overreach that the Supreme Court would later find to be ultra vires Article 227 of the Constitution.
The appellant subsequently obtained certification from the Court of Appeal under Article 163(4)(b) of the Constitution, on the ground that the question whether pension funds of public entities are “public entities” under the PPADA raised a matter of general public importance requiring clarification by the Supreme Court. The certified question formed the jurisdictional basis and analytical frame for the appeal before the Supreme Court.
Jurisdictional Note: The Importance of the Chosen Constitutional Gateway
Before turning to the substance, the Supreme Court delivered an important reminder on appellate jurisdiction. Since the appeal was brought under Article 163(4)(b) – the public importance certification route – rather than Article 163(4)(a), which confers a right of appeal in cases involving the interpretation or application of the Constitution, the Court was bound by the framed certified issue. Drawing on its earlier guidance in Bia Tosha Distributors Limited v Kenya Breweries Limited & 6 others [2023] KESC 14 (KLR), the Court emphasised that a litigant must choose a jurisdictional gateway and abide by its implications; the Court cannot exercise concurrent jurisdiction simultaneously. As a result, although the parties’ submissions had increasingly focused on the constitutional rights dimensions – particularly under Articles 27 and 40 – the Court anchored its analysis on the certified issue: whether pension funds of public bodies are “public entities” within the meaning of the PPADA.
This is not merely a procedural observation. It explains why the Court’s analysis, while necessarily touching on Article 227, declined to adjudicate directly on the property rights and discrimination claims as free-standing constitutional questions. The ratio emerges from statutory and constitutional interpretation of the procurement framework, not from a rights-based proportionality analysis.
The Central Question: What Is a “Public Entity” Under Article 227?
The key provision is Article 227(1) of the Constitution, which requires that when “a State organ or any other public entity contracts for goods or services, it shall do so in accordance with a system that is fair, equitable, transparent, competitive and cost-effective.” The PPADA was enacted to give legislative effect to this constitutional command, and its Section 4 applies the Act to “all State organs and public entities.” The contested provision, Section 2(o), places “pension fund for a public entity” within that definition.
The majority’s interpretive task was to determine whether Parliament, in enacting Section 2(o), had validly extended the constitutional concept of a public entity, or had stretched it beyond what Article 227 was designed to cover.
The Court began with the constitutional definition of a State organ, which Article 260 confines to “a commission, office, agency or other body established under the Constitution.” From this starting point, it was plain that a pension fund, established not under the Constitution but under a private trust deed registered pursuant to the RB Act, could not qualify as a State organ. The question was then whether it could qualify as “any other public entity.”
Applying the principle of ejusdem generis, the Court observed that the phrase “any other public entity” in Article 227(1) must be read in the same genus as “State organ” – that is, entities associated with the State in a constitutionally meaningful sense. All nineteen other categories of entity listed in Section 2 of the PPADA share a critical characteristic: they use public money, appropriated through the national budget or made available through public finance mechanisms, to procure goods and services. The PPADA defines “public money” as monetary resources appropriated through the budgetary process, as well as extra-budgetary funds such as aid, grants, and loans. The Public Finance Management Act similarly defines public money as money that comes into possession of or is distributed by a national government entity, or money held in trust for third parties by government entities, or money that can generate liability for the Government.
On that analysis, the majority found that pension fund contributions – drawn from employees’ salaries and matched by employers – do not constitute public money in any meaningful constitutional sense. Once deposited into a pension fund registered as an irrevocable trust, those contributions cease to belong to the sponsoring employer, cease to be traceable to the public exchequer, and vest exclusively in the members as beneficial owners. The funds are held and managed by trustees, administrators, custodians, and fund managers who are not public officers, are not remunerated from the Consolidated Fund, and whose functions and powers are governed entirely by trust deeds, not by governmental authority.
The Nature of a Pension Fund as an Irrevocable Trust
A thread that runs through the majority’s reasoning is the legal character of the pension fund as an irrevocable trust. Under Sections 23, 24, and 26 of the RB Act, any sponsor proposing to establish a pension fund must apply to the Retirement Benefits Authority for a certificate of registration as an irrevocable trust. This legal structure, the Court held, effects a fundamental transformation of the contributions made: they enter a private trust fund held for the exclusive benefit of members, and the sponsoring employer – whether public or private – loses all right to interfere with them. The scheme, as this Court had earlier affirmed in Albert Chaurembo & 7 others v Munyao & 148 others [2019] KESC 83 (KLR), retains autonomy from both the sponsor and the employees. That autonomy, the majority stressed, is not diminished simply because the sponsor happens to be a public body.
The Court drew a striking analogy: just as a salary is private property earned from public employment and not subject to public finance regulation merely because the employer is a State organ, so too is a pension – which is, at its core, deferred compensation – private property held in trust for the employee. To subject the pension fund to procurement law on the basis of the employer’s public character would be logically equivalent to regulating how an employee spends their salary on the ground that it was paid from public funds. The Court described the extrapolation required by the courts below as “absurd.”
Furthermore, Section 32 of the RB Act requires that every scheme fund – other than one fully funded from the Consolidated Fund – be maintained separately from any other funds under the control of the trustees or manager. This statutory segregation reinforces the private character of pension assets and places them beyond the constitutional domain of public finance management.
The Error of the Courts Below: Equating Regulation with Public Character
Both the High Court and the Court of Appeal treated the regulatory oversight exercised by the Cabinet Secretary and the Retirement Benefits Authority under the RB Act as evidence that pension funds are public bodies performing public functions. The Supreme Court majority rejected this reasoning squarely.
While acknowledging that the State does regulate pension funds through the RB Act – just as it regulates banks, schools, hospitals, and numerous other private enterprises – the Court held that regulation and supervision do not, without more, convert a private entity into a public one for the purposes of Article 227. Drawing on the test articulated in Outa & another v Okello & 5 others [2014] KESC 20 (KLR), which identifies the degree of State control and the source of funding as the critical considerations, the Court found that pension funds are funded by private contributions rather than the exchequer, and that trustees retain full autonomy in day-to-day management. What is required to establish public entity status is not regulatory oversight, but such a degree of control that the entity can properly be seen as an instrumentality of the State. Retirement benefit schemes, the Court held, lack that character entirely.
The Court also criticised the Court of Appeal’s sweeping declaration that all retirement benefits schemes are public entities – a holding it found to be ultra vires Article 227 because the certified question was confined to pension funds of public entities, and because that broader declaration had no constitutional support. It noted the analogy with cooperative societies: in Githunguri Dairy Farmers Co-operative Society Ltd v Attorney General & 2 Others [2016] KEHC 7104 (KLR), the High Court had correctly held that cooperative societies regulated by statute do not constitute public entities for Article 227 purposes, because they are neither State-funded nor subject to operational State control. The parallel with pension funds was apt.
The Test for Determining Public Entity Status
Drawing by analogy on the four-part test articulated in National Hospital Insurance Fund Management Board v Kenya Union of Commercial Food and Allied Workers & another; Attorney General (Interested Party) [2025] KESC 37 (KLR) for determining whether a person is a public officer, the Court fashioned an equivalent framework for entities. To determine whether an entity is a public entity for purposes of Article 227, a court must examine its establishment, personnel, functions, funding, and the degree of control exercised by the State. No single factor is determinative; all must be weighed together. Crucially, the majority added that performing functions of public interest does not, without more, clothe an entity with public character. The legal personality, decision-making autonomy, and source of funding are critical indicators – and on all three, pension funds stand as private entities.
Statutory Interpretation: Context, History, and the Constitutional Framework
The majority drew significantly on the historical and contextual approach to statutory interpretation affirmed in Popat & 7 others v Capital Markets Authority [2020] KESC 3 (KLR), which holds that a statute must be construed in light of the social, economic, and historical context of its enactment. That context was important on two levels.
First, the Court noted that the predecessor legislation – the Public Procurement and Disposal Act, 2005 – had not included pension funds of public entities within the definition of public entity. Section 2(o) was therefore an entirely new statutory innovation when the PPADA came into force on 7th January 2016. This legislative novelty called for careful scrutiny rather than deference.
Second, the Court examined the mischief that both the RB Act and the PPADA were designed to cure. The RB Act was enacted, as set out comprehensively in an affidavit by Dr. Edward Odundo, the former CEO of the Retirement Benefits Authority, to address a pre-1997 industry characterised by mismanagement, inadequate funding, opacity, and the dominance of sponsors over fund affairs. The PPADA, for its part, was enacted to eliminate opaque procurement practices involving public resources, replacing fragmented and discretionary practices with a uniform, rules-based, accountable framework. Neither legislative purpose, the Court found, was served by extending procurement regulation to pension funds, which are not public resources and whose accountability is already secured through the independent trustee structure mandated by the RB Act.
The Court also drew support from the National Public Procurement and Asset Disposal Policy, 2020, which defines a “public entity” as any department, agency, organ or other unit of the government that uses public funds for procurement, and public procurement as procurement by procuring entities using public funds. This policy definition, consistent with the constitutional framework, confirmed that the common denominator of all entities properly subject to Article 227 is the use of public money – a characteristic that pension funds do not possess.
The Retirement Benefits Authority’s Change of Position
One of the more unusual features of this litigation was the Retirement Benefits Authority’s dramatic reversal of position before the Supreme Court. Before the High Court and the Court of Appeal, the Authority had firmly supported the appellant, including through sworn affidavit evidence from its CEO asserting that pension funds of public entities are not public entities within the contemplation of Article 227, and that Section 2(o) violated members’ property rights by imposing burdensome and expensive procurement requirements funded from pension savings. At the Supreme Court, however, the Authority filed a fresh affidavit – sworn by its Deputy Director in charge of Legal Services – asserting that Section 2(o) was beneficial to pension fund members and protected them from corrupt trustees. In oral argument, counsel for the Authority abandoned the earlier position entirely and actively opposed the appeal.
The Supreme Court was unsparing in its criticism. It described the reversal as “disconcerting” and appalling, noting that a body entrusted with the protection of members’ and sponsors’ interests was approbating and reprobating in the same contest. More significantly, it held that the change of position was legally impermissible to the extent that it involved contradicting statements of fact made on oath in a prior affidavit. While Rule 22 of the Supreme Court (General) Practice Directions permits a party to abandon legal arguments taken in lower courts, it does not permit the amendment – whether formal or informal – of sworn affidavit depositions. The principle that an affidavit cannot be amended, particularly as to its substantive depositions, is well settled, and what the Authority had done amounted to exactly that. The Court therefore treated the Authority’s earlier affidavit evidence as subsisting and was not persuaded by the new position.
The Dissenting Opinion of Njoki Ndungu SCJ
Justice Njoki Ndungu dissented from the majority’s conclusions, though she agreed on the analytical framework for determining public entity status. Her disagreement was principally on the weight to be accorded to the factor of State regulation and control.
Drawing on the tests in Ramana Dayaram Shetty v International Airport Authority of India (AIR 1979 SC 1626) and Ajay Hasia v Khalid Mujib Sehravardi (1981 AIR 487 SC), which identify deep and pervasive State control and the public importance of functions as relevant criteria, the dissenting Justice took the view that the scope of ministerial regulation under Section 32(3) of the RB Act – covering funding, vesting, custody, management, application, transfer, and accounting of scheme funds – amounted to a degree of State control sufficient to bring pension funds within the concept of a public entity for Article 227 purposes. She also found support in Sukhdev v Bhagatram [1975] 3 SCR 619, where the Indian Supreme Court observed that institutions performing functions fundamental to society are, by definition, governmental agencies.
The dissent further relied on the “but for” test drawn from R v Advertising Standards Authority, ex parte Insurance Services (1990) 2 Admin R 77, asking whether government would inevitably have to perform the function itself if the non-statutory body did not exist – and answered that question in the affirmative. On this view, pension funds for public bodies, serving social welfare functions under pervasive statutory regulation, qualify as public entities and Section 2(o) is constitutionally sound.
While the dissent is a thoughtful and coherent counterpoint, the majority’s rejoinder is compelling: the “but for” test and the public function analysis conflate State regulation of private enterprises with State control of public ones. Virtually every regulated industry in Kenya would become “public” on that reasoning, including banks, insurance companies, and universities – none of which would be considered public entities for Article 227 purposes simply because the State supervises their conduct.
Final Decision and Orders
The Supreme Court allowed the appeal by a majority of four to one, set aside the Court of Appeal’s judgment, and declared Section 2(o) of the PPADA inconsistent with Article 227(1) of the Constitution and therefore void, to the extent that it subjects pension funds for a public entity to the application of public procurement systems. The declaration was grounded in Article 2(4) of the Constitution, which renders void any law inconsistent with the Constitution to the extent of the inconsistency.
Given that the matter had been certified as one of general public importance, and applying the principles on costs enunciated in Rai & 3 others v Rai & 4 others [2014] KESC 31 (KLR), the Court ordered each party to bear its own costs. The security deposit of Kshs. 6,000/- lodged upon filing the appeal was directed to be refunded to the depositor.
The decision is significant not only for the retirement benefits industry, which is now freed from the compliance burden of procurement law, but also for the broader doctrine of public entity classification in Kenya. It firmly establishes that the constitutional concept of a “public entity” under Article 227 is anchored in the use of public money and meaningful State control, not merely in the performance of socially important functions under regulatory supervision. Parliament may legislate broadly, but not beyond the constitutional frame.