Rwandan board wants early retirement at 60

East Africa News

Retired teachers demand their pension dues in Nakuru. Unlike Kenya, Rwanda’s pension benefits are fixed. Picture: File 

By BERNA NAMATA

Posted  Saturday, May 12  2012 at  12:47

The Rwanda Social Security Board is pushing for early retirement age to be increased by five years to avoid potential massive drain on the public purse and taxpayers’ limited funds as the number of people claiming pension benefits climbs while contributions remain low.

The pension body wants Rwanda’s early retirement age, currently at 55, to be increased to 60 while the normal retirement age remains at 65 years.

Last year, the pension body paid out about Rwf8.5 billion ($1.5 million) in pension benefits while it collected Rwf42.4 billion ($70.4 million) in contributions from approximately 400,000 contributors who represent 8 per cent of the working population in Rwanda. This pension coverage is still low compared with middle-income economies’ coverage of at least 25 per cent.

The proposal is contained in the new pension law that is currently before parliamentary committee for discussion and is expected to be passed by the end of this year, following Cabinet approval.

Pension contributions in Rwanda are set at 6 per cent and upon retirement pensioners are paid 30 per cent of their salary.

However, under a new draft pension sector law currently before parliament for scrutiny, the Rwanda Social Security Board wants early retirement to be increased to 60 years as the number of pension beneficiaries has been increasing.

However, people in the formal sector close to retirement have expressed reservations about the planned move, claiming that given that 54 per cent of Rwanda’s population is under 19 years of age, keeping them active in the workforce will deny the younger generation scarce employment opportunities.

They also argue that the ages between 45 and 55 constitute their peak performance ages.

But RSSB maintains that the new policy reforms are necessary to ensure that the fund is sustainable in the long term.

“This is a time bomb. We are planning for the future — the population pyramid will definitely change over time,” RSSB deputy director general Afrique Ramba told The EastAfrican.

He added, “We want to avoid a situation where you have few working people but you are paying out a lot of pension benefits as we have seen happening in developed countries,”

Rwanda unlike its counterparts in the East African Community currently has a system based on defined benefits, meaning that pension benefits are fixed. Uganda, Kenya and Tanzania have a basic pension system based on defined contributions that earn interest.

“We want retirement age to be increased because Rwanda’s life expectancy has improved and people are living longer. If people retire early we will be forced to spend a lot of money on them,” Mr Ramba said.

He argued that with Rwanda’s life expectancy currently at 55 years, up from 44, the increment would ease payment of pension benefits without stretching resources.

“The number of people retiring is increasing but the contributions are still low. We need to reform the system to avoid becoming underfunded in the long term,” he added.

Rwanda’s pension sector currently comprises the RSSB (formed after the merger of National Social Security Fund and RAMA, Rwandaise d’Assurance Maladie) and about 40 private pension schemes.