Bill seeks overhaul of pension system

Government plans to overhaul the pension system in the proposed new regulation by liberalising the industry. If approved by parliament, the bill will introduce private pensions as well as provident funds.
Government seeks to increase the retirement age to 60 years. The New Times / File.
Government seeks to increase the retirement age to 60 years. The New Times / File.

Government plans to overhaul the pension system in the proposed new regulation by liberalising the industry. If approved by parliament, the bill will introduce private pensions as well as provident funds.

Other proposed changes in the pension bill, which is before parliament, include raising the retirement age from 55 to 60 years and the introduction of the ceiling of pension contributions made by employees.

Government says that the proposed changes are meant to ensure a decent life after retirement, boost the capacity of the pension schemes and increase savings to finance development.

With statistics showing that national savings stand at 2.1 per cent of the Gross Domestic Product, government desperately needs to raise the savings level to 30 per cent per of GDP.

“We have low savings, currently the savings we have can not support the development agenda of the country,” Finance Minister John Rwangombwa, told members of parliament recently while the defending bill.

However, the changes may lead to a reduction in the benefits of a retiree and marginal reductions in employee contributions as government seeks to introduce a mandatory savings, where employee contributions will be deducted on a ceiling of Rwf400, 000. This means that an income above Rwf400,000 will not be subjected to pension contributions as workers will have the option of saving with the provident fund.

The Rwf400,000 ceiling will, however, also be subject to review every five years.

“It’s (the bill) unfavourable to the interest of workers especially those in their late years of working and many retiring before it’s effective,” said MP Charles Kamanda.

Experts say that the provident fund allows the risk-conscious investor to devote his money for the long term and earn interest on it. Studies to determine the interest rate to be obtained on the savings are not yet out.

A recent Organisation for Economic Co-operation and Development (OECD) report urges governments to raise retirement ages gradually to address increasing life expectancy in order to ensure that their national pension systems are both affordable and adequate.

“At a time of heightened global economic uncertainty, such reforms can also play a crucial role in governments’ responses to the crisis, contributing to fiscal consolidation at the same time as boosting growth,” the report reads.

However, members of parliament are opposed to increasing the retirement age to 60 years, seeking for early retirement when workers are still energetic.

Government says raising the retirement age would ease pressure on the working population.

The country operates under a scheme called ‘defined benefit scheme’ where workers support retired people.

Members of parliament are pushing for a thorough awareness campaign by government, targeting employees and employers.

“Let government retain the bill, the responsible institution conducts awareness campaign through the employees because it’s affecting many lives,” said Kamanda.

The Minister of Finance said government had discussed the changes with several unionists.

Law makers also want government to clearly indicate how much money employees may save through the provident fund.

They also need clarification on people’s right to use the savings in the fund as well as clarity on who is supposed to save in the provident fund.

The law makers have also proposed a progressive increase on pension contributions by the employee and regressive increase on contributions made by the employer.

Rwangombwa pointed out that the planned regulation would encourage self employed workers to make savings through private pension schemes.

 Once approved, the changes will allow people to save a bigger share of their salaries which is not provided for under the old law.

 “It’s a law and we can not approve it based on a mere trust we have on an institution, we need details on some issues like the benefits of the provident fund and the ceiling,” said Henriette Mukamurangwa.

Statistics provided by the minister show that in 2010, 153 people above 55 years of age retired, last year 102 people retired and as of June 51 people have retired since January 2012.

He said on average 100 people retire every year and we have 15,197 people above 55 years of age and still working.

Members of Parliament in the Consultative Committee meeting assured that the bill will not be approved before the studies indicating the exact ceiling, how much to be saved in the provident fund and views from the public are out.

Rwanda's life expectancy increased to 58 from 47 years one of the reason why retirement age increased to 60 from 55 years of age.

The drivers of improved life expectancy include access to health services, Poverty that declined as the share of the population living below the poverty line went down from 57 per cent in 2005/06 to 45 percent in 2010/11 and reduced child mortality.

 

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