Workers could contribute more to their pension if the new pension proposal is approved by parliament, the Deputy Director General in charge of Funds Management in Rwanda Social Security Board has said.
In an interview, Afrique Ramba, said the proposal presented to parliament last year calls for introduction of new products like ‘provident fund’ which is another form of saving.
The proposed changes drafted by the central bank, are quiet on how much one needs to save but it will provide room for new products needed on the market.
“It’s difficult to determine how much on average one needs to save to have a decent life but we can look into the percent of the salary one needs to save because it’s still very low,” Ramba said.
Rwanda is said to be among the countries with the lowest pension saving rate at six percent of the salary, compared to an average of 10 percent in the region.
Ramba emphasised that due to the small contribution, the pension package cannot sustain people after retirement.
“It’s a challenge and this needs to be looked into, experts who came here highlighted it and we have discussed it with our line ministry, “he added.
According to Ramba, if approved, the changes will allow people to save a bigger share of their salaries which is not provided for under the old law.
The law will be more saving friendly than the regime in place now, with flexibility of people who want to save more, including those who are self employed, he explained.
Currently, the self employed are limited to six percent of Rwf40, 000 of their salary which Ramba, explained, does not motivate them to save with the board.
“Saving depends on how much one earns, and a decent life after retirement depends on how much one has been saving,” he said.
Private pension schemes
There are very few private pension schemes which are established internally within institutions like banks, including the central bank.
Under this, the employer deducts additional small amount to the mandatory pension contribution.
Normally, it is managed by fund managers but as Rwanda lacks fund managers, it is managed internally and the contributions deposited on fixed accounts and share interest on deposits.
“As a fund, we have not talked to them because it’s small money, with no big volumes that can be invested in big projects,” Ramba emphasised.
It is risky because there are no guidelines, no body supervises them. But the new law will create private funds and determine how investments will be managed.
Strategies put in place to sustain retirees
The Government is proposing to cut retirement age to 60 from 65 years.
But public officials who can retire after 15 years of service can get their savings.
Ramba acknowledged that there is a need to develop strategies on how to invest workers’ contributions well and manage the funds to sustain those who would live longer.
Life expectancy has risen from 47 to 57 years currently which is attributed to economic development.
Poverty has declined as the share of the population living below the poverty line went down from 57 percent in 2005/06 to 45 percent in 2010/11.
Ramba, however, said at the moment, it is not a problem to pay pensions as the fund can afford to do so as the aging population in Rwanda is so low. The population is currently dominated by young people though in the future it could be a problem.
“When people live longer, you expect to pay more money because in the past, people used to die before retirement and others immediately after they retired,” he noted.
Rwanda is currently working under a scheme of ‘defined benefit scheme’ where workers support retired people and when you make a lesser working population, they would not be able to support the bigger retired population.