Envisioned Rwanda pension reforms sound good but we must tread carefully

Rwandan President Paul Kagame fielding questions at The Governors' Summit 2014 at Great Rift Valley Lodge in Naivasha, Kenya on January 20, 2014 where he gave an interview on a wide range of issues, including the assassination of Rwandan defectors living in exile. PHOTO/SULEIMAN MBATIAH 

 

In Summary

• Experience has shown that liberalisation widens the scope of choice and competition creates
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News that a government-sponsored draft pension law that seeks to break state monopoly in the administration of the pension sector may be passed soon, is a welcome development but one that calls for caution.

Experience has shown that liberalisation widens the scope of choice and competition creates room for innovation, which definitely gives the consumer value for money.

In the case of our pension sector, there has been muted resistance by the workers to save with the state-owned pension agency, claiming that its terms do not guarantee them a decent life in retirement.

Most workers prefer putting up property that will generate an income during their retirement. Figures from the Rwanda Social Security Board (RSSB), the state-owned pension agency to which all workers and employers must make monthly contributions, paint a gloomy picture: Less than 10 per cent of the working population save with the agency.

With the expected reforms, private pension agencies will be more flexible and more aggressive in bringing many contributors on board than the state pension agency—after all, the government has never been a good business manager.

To begin with, pensioners will have a right to save with the fund of their choice and to change the combination of funds as they deem fit. Workers in the same occupation can also form their own pension group that can be managed by professional fund managers.

This is a reliable and safe system because contributors can track their savings whenever they want. It can also be monitored constantly and at all levels by the government.


The creation of a provident fund as envisioned in the draft law could be another incentive to save. It will also enable savers to cater for education and housing.

These multiple initiatives could see Rwandans find a reason to save more, which will provide financing for long-term projects.

The government must ensure that these reforms end the misery experienced by senior citizens. This defined benefits approach has not given pensioners meaningful lives because of issues to do with inflation, which even eats into saving accounts.

No doubt, worries of survival in old age could be one of the factors that have promoted widespread but unreported high levels of corruption in the public sector.

While critics are accusing the government of not liberalising the pension sector fully by emphasising that savers should keep a certain percentage of their contributions with the state-run fund, we may need to appreciate the government’s concerns: This is a new approach and it is likely that some unscrupulous firms will want to misappropriate savers’ funds.

The government’s worries are genuine. It does not want to be burdened with old age dependants with no proper means of livelihood. Again, it must protect workers’ hard-earned life time savings.