Finance Minister Murangwa (middle) said reforming the pension scheme will ensure long term financial sustainability for Rwandans and the country.
Increasing pension worker’s contributions to Rwanda Social Security Board (RSSB) from the current 6 percent, which was established in 1962, to 12 percent beginning January 2025, will not only increase the benefits of members of the formal sector upon retirement but it will also help raise funds that will be invested in the economic development of the country.
This is what was said by officials, including the Minister of Finance and Economic Planning, Yusuf Murangwa, Regis Rugemanshuro, CEO RSSB, Amb. Christine Nkulikiyinka, Minister of Labour and Public Service and Francoise Mubiligi, Chairperson, Rwanda Private Sector Federation (PSF), at a press briefing to explain the rationale behind the changes in pension contributions, which will be put into effect next year.
The change has sparked a debate the media and social media, with some arguing that the country’s formal sector remains small and the contributions and taxes were already high, meaning that the increment would be a burden not only to public service employees but also private sector players who are being encouraged to join the pension scheme to expand the formal sector, which is currently at just 9 percent of all workers.
Minister Murangwa said that the new changes, which will be implemented progressively and gradually, to ensure that the transition is smooth, will help Rwanda increase the benefits of workers upon retirement, and at the same time, boost the country’s effort to create a pool of resources needed to invest in socioeconomic development, rather than borrow from external sources and exacerbate the debt burden.
Reflecting on the numbers from across the region and continent shared by RSSB CEO Rugemanshuro, the Minister of Finance said that currently workers in Rwanda make the lowest contributions, at 6 percent, which was put in place in 1962 when the pension scheme was started, and was outdated compared to the vision and ambitions of the country.
Officials at a press briefing to explain the rationale behind reforming the pension policy.
Murangwa said that the first beneficiary will be the members, who will be getting more benefits after retiring, as opposed to what they earn currently, calculated based on the 6 percent contribution, meaning that members earn very little when they retire, but under the revised scheme, they will earn more and enjoy a comfortable life at the end of their careers.
Under the revised pension policy, from January 2025, the employee will contribute 6 percent to social security and the employer will also contribute 6 percent, to make it 12 percent, as opposed to the current 6 percent, which is also shared equally between employers and employees.
Between next year and 2030, social security contributions will be increasing gradually by 2 percent, to reach 20 percent – a journey which Minister Murangwa said the government will walk with contributors, whether in the public or private sector, to ensure that the purpose is understood and ensure that it is not seen as a burden but rather a necessary move.
“The decision to increase workers’ contributions from 6% to 12%, beginning January 2025, is not just timely but it is something that we needed to do now rather than later. If you look across the region and Africa, Rwanda has the lowest pension contribution,” Minister Murangwa said.
“In Ethiopia, the contribution is 18 percent but security organs contribute 32 percent, where the employer pays 7 percent while the employee contributes 25 percent. In Tanzania, it is 20% and is shared between the employee and the employer, in Uganda it is 15 percent where the employee contributes 10 percent and the employer contributes 5 percent. In Burundi it is 10 percent in the public sector and 15 percent in security organs. In Kenya it is 10,” he added.
Murangwa said that currently retirees are not getting as much as they should at the end of their careers because the social security contributions are small and given based on an old policy, which is why many people complain, but under the revised scheme, workers will maintain nearly the same benefits as when they were working.
Explaining the reforms, RSSB CEO Rugemanshuro said that the reformed pension policy addresses some of the critical
issues to ensure the long-term sustainability of the scheme and ensure that members get what they deserve when they retire, urging people to take time and understand where the reforms are coming from and what they will achieve in the long term.
RSSB CEO Rugemanshuro said the reforms were well thought and will come with long term benefits for contributors.
Among other changes, he said the pension contribution will be calculated based on the person’s basic salary and other allowances such as accommodation and transport allowances, to minimise the impact on the take-home salary but overall, the benefits will be better felt at the end of one’s career, when their pension benefits will be calculated based on the last salaries of their career, to increase what they will take home.
Rugemanshuro said that reforming the current pension policy is in line with the country’s vision and ambitions as well as the increasing life expectancy of Rwandans, which is now almost 70, as opposed to 47 years ago, when the pension scheme was introduced in 1962.
“This means that life expectancy after retirement can go up to 18 years. These reforms are aimed at ensuring that people live comfortably after retirement, earning nearly as much as they earned when they were working, as opposed to the current Rwf80,000,”
“I can also say that under the new scheme, the benefits will also be distributed in a manner where all members will be able to earn enough when they retire, where those who were earning less will also receive a substantial amount to sustain them during retirement,” Rugemanshuro said, adding that the reform in the pension scheme is not only timely, but it addresses some of the issues that have been raised over the years.
Minister Nkulikiyinka said that the changes are aimed at ensuring that workers retire with dignity because of the long term savings they make, urging employees of the public and private sectors to look at the long term sustainability of the scheme and the benefits that will come from it.
The changes have sparked a media debate.
Mubiligi, PSF Rwanda Chairperson, said that members of the private sector understood the objective behind the reform and the importance of joining the formal sector, adding that they are currently mobilising them to onboard their employees. Minister Murangwa said that the government is aware of the impact such a change can have, but it must be done now rather than later.
“What we are talking about here concerns 9 percent of the people employed in the formal sector. The rest are considered to be in the informal sector, but we know there are people who are working in the private sector, who can join the pension scheme and enjoy the long term benefits,”
“We are not ignoring the challenges and difficulties, but it is the right thing to do. Currently, pensioners receive very little money because the contributions have been low, yet we are talking about the increasing cost of living, low wages and more. Actually what we are doing now will address those issues because there will be enough money in the economy to reinvest back,” Murangwa said, explaining the trickle down effect of the reform in the short and medium term.
He said reforming the pension scheme will ensure long-term financial security of Rwandans and help the country achieve its economic ambitions, using resources from Rwandans themselves- something he said is more sustainable than borrowing loans.
On his part, Rugemanshuro said the funds from members are crucially invested in the economy, as it has in a number of investments and assets, such as stocks, bonds, and real estate, which he said make significant returns over time. The RSSB CEO dispelled reports that the pension scheme makes losses in its investments, pointing out that a big share of RSSB investments are profitable.
He said that under the revised scheme, RSSB will make more prudent investments which will directly benefit contributors and the country at large, urging the public to look at the reform as a short-term burden that will accumulate long-term benefits for the country and Rwandans in general.
