EDPRS: Reforming the Social Security System

BY GODFREY NTAGUNGIRA The role of social security is increasingly being recognized for both its role in poverty alleviation and economic growth. It has been viewed as one of the major areas to be given attention if the country is to achieve Vision 2020 goals. In light of the above role in economic transformation, the government of Rwanda took a decision to reform the existing social security system. Among its objectives include: providing adequate and sustainable benefits, accelerating financial sector development, and providing pre-retirement benefits. The Social Security Fund of Rwanda (CSR) is preparing for comprehensive reforms in order to ensure its long-term sustainability. Transformation strategies Rwanda is experiencing transformation in economic development; the option deemed appropriate is to have a hybrid system with basic pension and provident fund pillars. After realizing the great role of social protection in the achievement of Vision 2020 targets and based on the state of affairs in the social protection area; it became necessary to lay strategies of streamlining social protection in Rwanda. Steps have already been taken in that direction, such as the recent merger between RAMA and CSR which ensures that health insurance will also become part of the services provided by the social security fund. This initiative will result in the setting up of the Rwanda Social Security Board which was established. A large number of people need security coverage starting with the young, the working people as well as the retired, and CSR is positioning itself to give coverage to all of them. Henry Gaperi, the Director General of CSR recently explained that the reforms would mean a complete overhaul of CSR in order to be able to meet the challenges brought about by a modern society. “These reforms are urgent, and definitely we expect to review our policies regarding social protection so as to meet our intended targets,” The fund coverage has to be mandatory to all workers and all necessary measures are being put in place to ensure that workers of the informal sector just like in the formal sector save for their retirement. The core vision of CSR is to become the best social security service provider in the region with a mission of efficiently managing members’ funds and providing high quality service to beneficiaries and stakeholders. CSR is looking forward to increase the number of contributors including the informal sector And apart from that, new packages will be introduced such as health, education as well as housing, which would also increase the number of contributors into the social security fund. The main issues that have been considered as vital in streamlining social protection in the country include; reforming the social security system and laying strategies of extending social protection to rural and informal sectors. The modernization team operating in the Social Security Fund of Rwanda analyzed the structure of the Rwandan pension system, assessed the financial conditions and evaluated the entire socio-economic and demographic status in the country. After making the assessments, it was found out that the reform option that can address all the above needs and worries is the change from the defined benefit pay-as-you-go system to a multi pillar system. The provident fund pillar is composed of two branches of complementary pension and special savings. For complementary pension, the portion of earnings above the established ceiling constitutes the major financing component of the branch. The ceiling proposed is 30 times the minimum salary. The current minimum salary (proposed by SSFR) is 1040 Rwandan Francs. The special savings branch is meant to enable the members acquire pre-retirement benefits like housing, education for the children, etc. Needless to say, the funds under the provident fund pillar will be managed under the defined contribution principles. The financing will be mandatory contributions that may be supplemented by voluntary contributions. Such pre-retirement benefits, it’s believed that this will attract workers operating in informality. 2009 expected resultsReal estate projects Rwanda is currently growing its potential for real estate investment and is attracting international estate developer and CSR has endeavored to invest a number of real estates projects. In the first quarter of 2009, there were 8 ongoing real estate projects and the progress of these projects is good. SSFR is mainly involved in the construction of infrastructure and business department among the infrastructure include Gacuriro 2020 estate where 300 residential houses were constructed There is also Real Estate with 50 apartments at Kacyiru and other project that will be realized in the near future like SSF’s state of art project, insurance Plaza, the first of its kind with 17 floors soon to be constructed in the heart of the city. Benefit payments The total amount of benefits paid during this period is Rwf 1.5bn Compared to other reporting periods, benefits increased tremendously, this tremendous increase was brought about by the computerization of declaration that were missing in the database. The computerization of these declarations facilitated benefits processing. In a bid to maintain proper records and accountability in providing pensions and receiving contributions, the state owned with financial autonomy is carrying out massive storage of client records in computers. The new and extra-ordinary use of the Information Communications. Technology (ICT) in record keeping comes primarily to reduce the pending files of beneficiaries demanding their pension money. CSR Share holding The Fund holds shares in 14 companies and the value of shareholding in these companies is Rwf 28.3bn Membership sensitization Following the intensification of sensitization, the fund’s membership grew from 6,676 in 2008 to 7,290 employers, an increase of 9.2%. The number of employees also rose from 258,457 in 2008 to 271,505 (an increase of 5%). Considering the demographic statistics, this membership status represents a compliance gap of 14.2 %. The fund has put in place measures to narrow down this gap and extend coverage to informal and other uncovered sectors. Other achievements CSR is planning to bring new products, among is the introduction of maternity insurance and maternity insurance law. Actuarial study was completed and its completion will significantly guide the implementation of the various reform proposals. Currently the CSR performance in the first quarter of 2009 was good and the fund is committed to maintain this good performance in the remaining part of the year 2009. Extension of social security system to informal sector In quest to achieve Vision2020 and EDPRS goals CSR is planning on the integration of informal sector into Rwanda social security sector. The informal sector constitutes also another group of population more exposed to risks such as occupational hazards (accidents, diseases) and other risks but this population is not until now covered against all these risks. Rwanda social security fund is looking forward to introduce the sector and document has been finalised and ready to be tabled in the parliament. A more fruitful approach, workers of rural sector and those of the informal sector have no access to adapted systems of insurance or other forms of social prepayment schemes. They are also excluded from the benefits of the Social Security in their dimensions of redistribution and national solidarity. The document considers the experience of other countries in social protection of the rural and informal sector workers. The document also analyses the way in which several countries managed to integrate the rural and informal sectors in the social security. The second part is proposes the possibility of integrating these two sectors in the social security of Rwanda. The SSFR has also invested into various areas of the economy including shares of SSFR in different enterprises. The fund has registered great strides in the area of pensions and contribution; benefits granted which compels The SSFR’s CEO to believe that his institution should be taken as potential investment & business partner. Ends

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EDPRS: Reforming the Social Security System