The East African Community (EAC) has commenced a process to overhaul the pensions sector, aiming to discard the current arrangement that favours formal sector workers, for a more inclusive system that will take care of increasing informal sector employees.

Experts say that EAC member-countries operate outdated pension systems that largely prioritise individualism over collectivism or solidarity, leading to the exclusion of the unemployed population and the rising number of people employed in the informal sector.

Bonaventure Kagaba, the Director of Supervision, Insurance and Pension at the National Bank of Rwanda) says that the Rwandan system, operated by the Rwanda Social Security Board (RSSB), covers only the formal sector and that it "poses a very big question mark.” It leaves the country’s pension sector, with total assets worth Rwf404.6 billion, limited in coverage at just 7 percent of the population.

Last month, an inaugural regional pension supervisors authorities meeting was held in Arusha, Tanzania to start a reform process to achieve harmony and build all-inclusive pension sector for East Africans.

Critical areas being discussed, according to Kagaba are liberalization of the sector to allow private pension schemes to operate. It would entail introducing the voluntary occupational pension schemes, and others targeting the informal sector such as people in cooperatives, farmers, and others with no regular incomes, all aiming to "smoothen” as well as augment retirement benefits for east Africans.

Lessons will be picked from Kenya where private pension arrangement is bigger than the public.

The Rwandan pension system comprises of one public social security fund by RSSB and 53 private schemes managed by insurers. The contribution rates are 3 percent paid by the employer and 3 percent by the employee.

The mandatory scheme covers all public or private sector employees irrespective of terms of employment or nationality while occupational pension schemes cover formal sector workers in companies or institutions. Individual retirement saving plans covers the formal and those in the informal sector may join voluntarily.

Justifying the need for an overhaul, David Nyakundi Bonyi, the Board Secretary Kenya Retirement Benefits Authority, said the colonial era left behind social protection programs initially intended to reward loyal civil servants and employees and also favors those with regular incomes.

This arrangement, experts say, limits growth opportunities that would otherwise accrue from expanded pension sector. It is understood that if new reforms succeed, regional economies stand to benefit from large pension assets that could be used to develop regional capital markets as well as build social infrastructure.

According to Kagaba, harmonizing will imply that everything in the region, including pension standards, licensing, requirements, and others, become similar so as "to allow the portability of pension” such that if one was working in Rwanda for years but later retires to live, say, in Tanzania, they easily get their retirement benefits.

"This puts into consideration having the same tax regime in the region. The way we invest in pension schemes also matters as standards must be similar. Licensing of different market players must be similar. Corporate governance structure for managing the schemes must be the same.”

Current systems

In Burundi, the pension system comprises the Office Nationale des Pensions et Risques Professionnels (ONPR), a mandatory scheme for state employees, the Institut Nationale de Sécurité Sociale (INSS) which covers formal employees regulated by the labour code, and few other private retirement plans.

Kenya has social pensions covering people above 65 who are very poor, civil service scheme that covers all civil servants, military, teachers, and members of parliament and the mandatory National Social Security Fund which covers all formal sector workers. 

There are also voluntary occupational schemes that cover formal sector workers in companies as well and schemes covering individuals in the formal or informal sector. Kenya’s pension sector is the largest in the region with assets worth $ 7,927.11 million.

Uganda has the National Social Security Fund that covers formal sector workers public service pension fund, armed forces pension scheme and occupational pension schemes. However, only about 4.5 percent of the current labour force is covered.

Tanzania has five mandatory public pension schemes, including the National Social Security Fund ; the Public Service Pension Fund (PSPF) and the Governmental Employees Provident Fund (GEPF) but the sector with total assets worth about $3,917 million covers about 5.4 per cent of the labour force.

When it comes to sector control, in Kenya, there is large private sector participation while in Burundi, it is public or state controlled schemes. In Uganda, the sector is largely state controlled but moving to private sector participation while in Rwanda and Tanzania, state control dominates.

Kagaba said that pension funds can be harnessed to spur gigantic regional development projects.

"Pension sector is about mobilising resources for long term investment. This is what makes capital markets to be vibrant. Where the pension sector is not adequately developed, it may cause some other weaknesses in the capital market because the capital market will not be able to get the resources or funds to develop.”