Members of Parliament yesterday said that Rwandans must get the best out of the Pension Bill currently under debate.

The Bill was up for scrutiny on Wednesday by the Chamber of Deputies’ standing Committee on Social Affairs. The Committe is chaired by MP Marie Rose Mureshyankwano.

During the session, a difference was drawn between a defined contribution pension plan and a defined benefit pension plan as set out in the Bill.

The "defined contribution scheme” according to Article 25, is a scheme where contributions are defined and the benefits depend on the contributions made, with the value of the eventual benefits depending on the accumulated contributions and earning thereon.

On the other hand, the "defined benefit scheme "in Article 26, is one in which one’s retirement benefits depend on the number of years of service, the average final pensionable benefits and a pension factor determined by law.

The two schemes are both provided for in the draft law.

The session was attended by officials from the Rwanda Social Security Board (RSSB), the Ministry of Finance, and the central bank. 

The lawmakers expressed concerns over pre-retirement inflation risks, also raised during the recent annual national dialogue council.

"People receiving pension complained about the money being little and wanted it  revised to match the present cost of living,” Mukarugema said.

The national dialogue (Umushyikirano) conference resolved to further examine the issue regarding inflation risks, but MPs requested the experts to expound on all issues, including investments performance by the RSSB and how pensioners benefit.

Aloys Nsengiyumva, a legal advisor in the Ministry of Finance, said: "Everything will be explored until a law that satisfies the interest of all Rwandans is in place.”

MP Gastone Rusiha sought clarity on computing the real value of eventual benefits depending on the accumulated contributions and earning as per Article 25.

"Will people have a right to look at the balance sheet and the profit and loss accounts of the RSSB or you will be the ones to determine it for them?” Rusiha asked.

Jean Paul Sekabuke, an RSSB official, said: "There will be individuals to manage pension and they will be responsible for ensuring transparency.”

Defined contribution vs. defined benefit

The defined contribution pension plan is that where contributions are specified (mandatory or voluntary depending on the scheme), but the amount received by the employee on retirement is not fixed. 

It depends to how the funds have been invested and the return on such investment. Employees normally have the responsibility to decide how the contributions are invested though investment choices may be limited by the actual pension fund provider. 

One can not know how much the plan will ultimately give the employee upon retiring and the amount contributed is fixed, but the benefit is not.

On the other hand, a defined benefit pension plan is one in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings, length of service and age, rather than the individual investment returns.

In the private sector, defined benefit plans are often funded exclusively by employer contributions while in the public sector, they usually require employee contributions.

Companies generally like defined contribution pension plans because the pension outlay is gradual and controlled and liability for investment performance is passed onto the employee.