The monopoly enjoyed by the Rwanda Social Security Board (RSSB) as the sole social security provider has come to an end as private pension schemes commence operations.
This will give Rwandan employers and individuals alternative schemes.
The latest entrant is Liaison Group, in Partnership with KCB Bank Rwanda, which introduced a private pension scheme dubbed ‘Ituze’.
The private pension scheme was registered by the Central Bank and the registrar of companies at the Rwanda Development Board after it was found to be compliant with requirements.
The entry of the private pension scheme follows reforms in the pensions sector which were embarked on following the gazetting of a law allowing registration of voluntary pension schemes and licensing of pension scheme service providers.
These reforms aimed at creating an enabling environment for private pension schemes as a way to promote growth and stability in the sector.
Though the industry had not opened up, there have been over 50 private pension arrangements managed by insurance firms, according to a previous survey conducted by the Central Bank.
National Bank of Rwanda Governor, John Rwangombwa, termed the development a significant step forward in the financial and pension sector.
Over previous years, the pension sector has presented a rather dull outlook largely due to the fact that very few Rwandans were entitled to pension benefits leading to fears of vulnerability of elderly population in the future.
The lack of voluntary pension schemes saw a majority of the Rwandans who work in SMEs as well as those who are self-employed excluded from pension privileges.
With over 85 per cent of the population working in the informal sector and only an estimated one per cent saving for retirement, sector experts were concerned that it could lead to increased burden for the working class in the future and financial vulnerability of elderly population.
Rwangombwa said that entrance of players such as Liaison Group into the market enables the skipping of a hurdle where firms could not put up their own schemes.
“This will enable SMEs and self-employed people who might not have found it viable to establish their own pension schemes, this will provide them with simple and cost effective vehicles for their benefit arrangements,” he said
He noted that private players such as Liaison Group have the flexibility to improve convenience of payment through platforms such as mobile money which will further incentivise more Rwandans to join the platforms.
“Rwandans can save for their retirement via voluntary pension schemes. The members will have flexible and convenient payment channels, including bank deposits, while mobile money platforms will see more Rwandans subscribe to the schemes,” he added.
Rwandans’ appetite for savings has been seen to grow over the last few years. For instance, in the last 10 year government bond issued last month, 49 per cent of the subscription was by individual investors compared to about 1 per cent a few years ago.
The governor said that this puts the country on the right track towards mobilising savings for national development and for capital markets development.
“This puts the country on the right track in mobilising savings to fund national development. We had a goal of achieving national savings of 20 per cent of our GDP. By last year, we had only achieved 10.3 per cent. Such products on the market will enable us achieve development objectives,” he said.
Acting Capital Markets Authority Executive Director Eric Bundugu said that the developments will catalyse capital markets development in Rwanda as it will develop a savings culture.
He said that private pension schemes will also see the growth of savings, which will reduce reliance on foreign assistance as the pooled funds can be lent to government for infrastructure projects and other initiatives.
Fred Nyayieka, of Liaison Group, explained that KCB Rwanda will act as a custodians and corporate trustees of the scheme.
However, the assets of the bank are separate from those of the scheme, meaning that members’ savings would still be safe in the unfortunate event that the bank was to collapse or go under.
Membership for the scheme is open to staff of organisations that do not have retirement packages, self-employed people, Rwandans working outside the country, members of existing schemes, Non-Government Organisation employees among others.