Repackaged RSSB to offer members more benefits
Workers who save with the Rwanda Social Security Board (RSSB) will soon start enjoying more pre-retirement benefits when a new draft pension bill, now before Parliament becomes law.
RSSB seeks to overhaul the current system—that experts say is unsustainable and offers few choices to savers—by ushering in new package that gives members more benefits and “flexibility on how and when to spend their savings.”
At the centre of the new legislation is a proposal to cap insurable earnings to about Frw 400,000 and introduce a new platform called a provident fund—a form of savings account into which a member’s contributions above the earnings ceiling are kept. This will operate alongside the current pension scheme.
The proposal to cap insurable earnings (the contributions that accrue basic pension) is aimed at positioning RSSB to sustainably provide members with the best possible benefits after a study exposed loopholes in the current regime that would render the business unsustainable beyond 2030.
It was revealed that the current open-ended system, where insurable earnings go even beyond 100% of gross salary when the contribution rate is 6% (the lowest in Africa), could expose the RSSB to collapse in the long term because there will be many retiring people claiming lump sum amounts of money against fewer savings.
Emmanuel Kayitare, RSSB director of pension and Pre-retirement benefits, told The Rwanda Focus that a pension system without limit on insurable earnings is vulnerable to collapse in the long term. “It is surviving at the moment because there are few people retiring,” he said.
The change, if approved by Parliament, means that RSSB will operate a two-pillar system—the provident fund and the traditional pension fund in which monthly contribution by members from insurable earning will continue to accrue pension as is the case today.
According to Kayitare, money saved by individuals via the provident fund can be accessed by members for personal development and to finance basic needs such as buying/ building a house or pay school fees for children before retirement.
This change, according to kayitare, will help RSSB broaden pre-retirement benefits to be enjoyed by members as well as make saving with RSSB attractive to many people in the informal sector. All the money saved by a member in the provident fund can be withdrawn in lump sum plus interest upon retirement. In case of death by a contributor, the money will be paid to a spouse and/or children.
At the same time, a member will continue to draw monthly pension from their insurable earnings saved under the pension fund and incase of death, the benefits are transferred to a spouse who also enjoys the facility for life and to children up to the age of 18 if not in school and up to 25 when still at school.
He said that currently, RSSB does not offer pre-retirement benefits and this makes it unattractive to the millions of people employed in the informal sector and are not obliged by the law to become members.
“In order to attract more savings, we need to make it attractive so as to encourage more people save for old age,” he said.
Like many developing countries, the saving culture in Rwanda remains poor with a saving rate of just 4.2% of GDP—one of the lowest in sub-Saharan Africa.
“We want to develop a comprehensive system with more benefits to members and at the same time meet national needs. A system that increases national savings; because when savings increase, investment takes place and increased investment lead to economic development,” said Kayitare.
Early retirement at 60
The actuarial valuation conducted in 2008 proposed increasing retirement age from 55 to 60 as a strategy to avert the crisis projected in 2030. This change enhances sustainability of the pension scheme by creating more space for contributions and investments.
Contrary to misgivings from some people, the increase in retirement age has no negative effects on the members, instead it comes with gains.
For example, it is proposed that a member who saves for 15 years will be entitled to 30% of gross salary upon retirement and any additional year worked beyond 15 years attracts extra pay equivalent to 2% of gross earnings This implies that working for additional 5 years gives the member additional benefit amounting to 10% of gross earnings.
If one worked for 20 years, they are entitled to 40% of their gross pay (20 multiplied by 2). Long-serving workers therefore not only benefit by saving more, but also stand to get bigger pension upon retirement.
“That is why we are introducing pre-retirement benefits so that members can address their immediate needs without compromising their retirement,” said Kayitare.