BY GODFREY NTAGUNGIRA
For many years diverse social security programmes have been developed in Rwanda. Although Rwanda already has the core elements of a comprehensive social security program in place, substantial gaps remain.
This is mainly attributed to a lack of general orientation based on one common vision, as well as the lack of coordination for actions towards developing complementary objectives.
In line with her road map into the future it is crucial for Rwanda to develop a social security system which is all inclusive and which is efficiently managed which has a potential of contributing significantly to savings mobilization.
Thus within the EDPRS framework policy makers have seen the need of developing priority actions to be implemented in order to make ‘social security for all’ a reality.
Enhancing the social security system
In line with the EDPRS framework and Vision 2020 Rwanda is committed to make social protection every citizen’s right considering the importance of protection of social risks as a major component of developing and sustaining an all inclusive social-economic development programme.
Universal social security coverage means that all Rwandans have to be covered with maximum benefits possible for social security packages such as retirement and key pre- retirement benefits such as housing and education.
Modalities of Government Intervention
There are a number of different ways in which the Government can ensure that the Rwandan citizens have access to social security benefits.
The organizations established to provide for the provision of each component of social security may be governmental or private sector institutions, or some combination of the two.
The Government may institute programs that require compulsory participation or provide tax and other incentives to induce voluntary participation, or simply provide access to well-regulated assurances that citizens may or may not choose to utilize.
Other strategies already underway in Rwanda include effects geared towards strengthening the national social security infrastructure. For instance the implementation of a universal health care insurance scheme in rural areas is the most successful effort to date to design a social security system meant for the country’s informal sector.
Specific objectives of Vision2020
In line with the Vision the coverage of social security expected by the year 2020 looks closely at developing of the system vertically ( in terms of branch networks) and horizontally (in terms of population) coverage.
Pension branch: Every resident in Rwanda must have a pension cover either by a public pension scheme or by a private one.
Public pension: This is actually the first pillar based on ‘defined benefits’ scheme which will remain mandatory for the whole formal sector with 100% coverage.
Provident Fund: Composed of complementary pension scheme based on a ‘ defined contribution’ model. Examples will include schemes for pre-retirement benefits namely housing and education, which will be also mandatory for the formal sector.
Private pension: For the rest of the population adherence to pension scheme will be also mandatory. However the citizenry will have free choice to subscribe either to a private pension scheme, or to the pension scheme managed by the public provident fund.
Occupational hazards branch: Will remain mandatory for the formal sector with 100% coverage. It will be open to allow subscription from all workers in organized groups within the informal sector, especially cooperatives, with a target to reach at least 70% coverage.
Health care branch: the vision of Rwanda is to achieve the goal of universal health care through universal health insurance scheme.
Maternity and Sickness branches: will be mandatory for all formal sector operators. Intensive sensitization programs and appropriate incentives will be instituted to promote voluntarily subscription of at least 70% for urban and rural informal groups.
Unemployment benefits: This scheme will be introduced as soon as economic conditions will allow it.
The Social Security management in Rwanda is fragmented with pension and occupational risks branches being administered by the Social Security Fund of Rwanda, and medical insurance being managed under three schemes, namely, RAMA, MMI and Mutuelles de Santé.
The pension branch of the NSSF provides insurance against the risks associated with old age, disability and death. It is primarily aimed at providing retired persons with an income on a basis proportionate to number of years worked and wages earned (and the level of employee and employer contributions to the program).
Coverage and benefits
Pension coverage is generally limited to those individuals who are employees in the formal sector – approximately 7% of the working population of the country. Actual estimates indicate that only 5.6% of the working population (2.3% of the total population) is covered.48,363 Rwandan pensioners were receiving old-age pensions as of 2006. The average monthly pension is Rwf.3, 477 (US$ 63).
Individuals are eligible for a monthly pension at the age of 55 if they have accumulated 15 years of service, or at age 65. The amount of the pension paid is based on a formula that takes into account the level of wages earned and number of years of service in the formal sector.
Disability insurance coverage is to provide the same individuals with social protection. Disability pension is paid to those who have lost 50% or more of earning capacity, have at least 5 years’ contribution history, and have actively contributed for 6 of the last 12 months prior to the onset of the disability.
Disability is assessed periodically by a doctor approved or appointed by the NSSF. NSSF calculates the disability pension under the same benefit formula as old-age pension, except that the claimant is credited with only 6 months of coverage for each year that a claim is made before age 55.
For both types of pension, pensioners receive a minimum pension equal to 50% of the minimum wage (at the time payment level is determined).
The last such increase was in 2002. After the pensioner dies, the surviving spouse (and children up to the age of 25 if still students) of a pensioner continues to receive the pension until his or her death.
The Pension Branch’s benefits are primarily financed by employer and employee contributions. The contribution rate is 6% equally shared between employer and employee.
Additional financing comes from penalties that are charged for late declaration and payment of contributions and the gains obtained from the NSSF’s investment. Investment returns, however, have been below the inflation rate.
Professional risks branch
The Professional Risks Branch protects households against the risk of income loss due to work accidents or work-related illnesses.
Coverage and benefits
The Professional Risks Branch covers workers in the formal sector. Employed persons are covered regardless of the nature of their work or the extent of their exposure to hazardous working conditions.
A person with work injury or work-related diseases preventing him from working is entitled to: (i) a cash benefit equal to 75% of the insured’s average daily earnings that is payable until recovery or a determination of permanent disability, up to a maximum 180 days, and (ii) the reimbursement of medical and pharmaceutical fees.
If the insured person is totally and permanently disabled, he/she is entitled to 85% of his monthly wage. In 2006, a total of Rwf.23 million (US$ 418,000) in benefits was paid to 3,561 beneficiaries. The average benefit paid was Rwf.6,559 (US$ 117).
Governance and management
The RSSF, which is in charge of the management of the pensions branch, reports to the Ministry of Finance and Economic Planning, which coordinates its activities with the Ministry of Social Affairs and Labour. It is intended that the National Bank supervise the NSSF’s asset management activities.
The RSSF is administrated by a Board of Directors, the composition of which is determined by a decree of the Prime Minister. The national legislature recently enacted the draft law to reform NSSF governance.
The NSSF recently took steps to improve the governance of its asset management function by establishing a transparent investment policy and improving its capacities in this area. A recent actuarial valuation identified deficiencies in recordkeeping and information technologies and the contribution remittance process.
Employers pay a compulsory contribution of 2% of each employee’s salary to the NSSF to finance professional risks.
Although permitted under current law, there is currently no rate differentiation among various employers or economic sectors, which may present different levels of risk of worker injury and illness.
Employer contributions are allocated to an operational fund, a technical reserve and a security reserve that is invested by the NSSF.
A 2003 actuarial study concluded that this branch is well-funded – and may be overfunded. It is likely that benefit claims will decrease over time as workplace safety, working environments, and health and living standards improve.
Major issues in social security programs in Rwanda
1. Minimal coverage
The most important issue in social security in Rwanda is its minimal coverage, especially for retirement and professional risks schemes which are a privilege for precisely those who have access to employment in the formal sector.
2. Exclusion of a vast majority of the population
It is not acceptable to have more than 90% of the active population excluded from benefiting part of their fundamental rights.
In addition to this, not only is a fact that existing branches are reserved to a small portion of the population, but that also many other branches are not yet covered in the programs. However the recent development in health insurance is a positive exception to this.
3. Insufficient benefits
For existing branches, the benefits are not sufficient and there is serious concern that financial sustainability is not assured.
Therefore important adjustments on major parameters will be needed in order to guarantee sufficient benefits financed by fair contributions.
For pension schemes, the issue of insufficient benefits for many of the beneficiaries despite a generous formula must be addressed in particular, thus justifying the need to create additional pillars.
1. Addressing social protection
The National social security policy addresses all aspects of social protection, but focuses most extensively on pensions and healthcare.
It is consistent with and supports the long-run goals of Vision 2020 and the Economic Development and Poverty Reduction Strategy.
2. Boosting social protection
So far actions taken by the Government in accordance with these policies have benefited the social security program. For example, improving conditions necessary for successful enterprise in Rwanda also creates jobs and expands the base of contributors to the National Social Security Fund (NSSF).
Similarly, the development of the Rwandan financial sector – and its proper regulation – will provide a more efficient means for the allocation of capital.
3. Widening social protection
The benefits of this development will accrue to the NSSF, as well as to other investors and enterprises that seek capital.
These developments also set the stage for the establishment of private sector pension schemes and life-event insurance products to supplement state-provided social security.
Pension and risk management products, in turn, can increase buy-side demand for securities and other investment opportunities, and for financial services, such as professional asset management, recordkeeping, actuarial and custodial services.