Your pension will never be enough

An important consideration in planning for retirement is the level of income you will need and where the income will come from. Most people have unrealistic expectations as to the level of pension they will receive in retirement. This explains why in Rwanda today many mumble at the benefits paid by Rwanda Social Security Board. The RSSB pension arrangement is defined benefit and you can know at onset the level of pension benefits you may receive at any time should you leave or retire. A quick look and comparative practice in the East Africa Community region will reveal more shocking revelations for Kenya and Uganda both of which have defined contribution schemes. However, whereas in Uganda the aggregate contribution to the national social security fund is 15 per cent, Kenya’s is a fixed negligible amount that in most cases works to several decimal percentage points. Tanzania, Burundi and South Sudan all have defined benefit schemes with verifying contribution rates. Tanzania tops the list of high contributions at aggregate of 20 per cent, followed by South Sudan at 15 per cent with Burundi at 10 per cent. Considering that the level of benefits do not vary significantly, it is not realistic to expect the RSSB to offer any reasonable benefits as further improvement to the current benefit formula may only mean more burden to younger employees. It is important to note that whereas there is need for further prudence in the management of the scheme assets to realise superior investment returns, the same do not have a direct bearing on the level of benefits paid today. The RSSB is the first pillar of social security and the entire obligation of providing for reasonable retirement income cannot be left to the first pillar alone. The proposed national provident fund, although a welcome idea in complimenting social security benefits, is modeled along the lines of a first pillar scheme and may therefore duplicate the roles of the current scheme. A review of the first pillar to include universal coverage and with part of the benefits to be funded from national revenues would have been the best option. The focus would then shift to the other pillars of social security. As employees literally spend all their productive years in employment, a provision for their income in retirement is the right of every employee. However, regulating discretionary arrangements cannot achieve any nation’s vision of offering a reasonable and sustainable standard of living for every citizen. Unlike the RSSB, occupational pension schemes remain discretionary and although the pension Law No. 05/2015 of 30/03/2015 provides for a broad framework for management of retirement schemes, fundamental provisions like contribution rates are not legislated. Worse off few employers have established occupational schemes for their employees. Considering that the average employer contribution to national security schemes in the region (with the exception of Kenya) is above 8 per cent there is more leeway in restructuring the social security system and make occupational schemes mandatory with prescribed minimum contribution rates. The breakdown of the traditional African social security systems, combined with rampant poverty and low employment rates requires quick action. The starting point would be to educate the public to change the mindset about retirement savings concurrent with a review of the social security policy and come up with a comprehensive universal social security scheme to admit all citizens. The second and most significant would be to make it mandatory for all employers to set up retirement schemes with minimum of parameters like contribution rates prescribed. This would not only force employers to assume their social responsibility to employees, but would also guarantee such employees decent retirement income at no further cost to the society and the Government. When well implemented, both employees and employers would derive direct benefits from retirement arrangements. What is required now is a push for a uniform pension policy for all employers by making it mandatory to establish occupational pension schemes. These schemes, as a second pillar of social security, would ease the pressure on the Government in providing social security to its unemployed citizens. It would also help in the retention and redistribution of the capital wealth generated in the economy, the bulk of which may only be remitted to foreign markets as trading profits. This is the only way employees who have contributed to laying a foundation for employers’ profitability during their working lives would be able to benefit when such workers can no longer continue to work as a result of old age or sheer ill fate.

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Your pension will never be enough