The new proposed increase in mandatory pension contribution which will take effect in January 2025 is intended to raise Rwanda’s contribution rate, the lowest in Africa, and ensure more benefits for retirees, the Minister of Finance and Economic Planning has said.

Yusuf Murangwa made the observation on December 2, at a press conference about the proposed pension reforms, which include increasing monthly pension contributions from the current 6 per cent of monthly basic salary to 12 per cent of monthly gross salary.

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Murangwa said the availability of more funds to the pensions body would drive up investment and the private sector.

The contribution rate is expected to gradually increase further to 20 per cent of the employee’s gross salary by the year 2030, and will be split equally between the employer and employee, as Rwanda Social Security Board (RSSB) said in a statement on November 28.

According to the Ministry of Finance and Economic Planning, the reforms are expected to ensure long-term sustainability of the pension fund, improve the living conditions of the existing retirees and ensure social security for future generations.

Murangwa said that currently, pensioners get very small pension benefits because the contributions that were paid since a long time ago are very low – at 6 per cent of the employee’s basic salary. He recognized that the increase would have implications.

"We don’t disregard the fact that this is not easy; in fact, decisions like these have implications, but not taking them has even heavier implications,” Murangwa said.

The first objective of the move, he pointed out, is to increase the pension benefits for retirees, adding that the second objective is to ensure that pensioners in the next 15 to 25 years get benefits that will be responding to the cost of living, which is expected to be higher by 2050.

The third objective, he said, is to increase savings in the country, and the impact that has on boosting investment and job creation, among other things "that benefit all of us.”

Murangwa said that there was indeed a delay in increasing pension contribution rate, given the developments that occurred in the country’s socio-economic sector – given that the current rate was set in 1962.

"Research showed that in the entire Africa, it is [in Rwanda] where contribution rate is lower than in all other countries,” he said.

Murangwa said that in Ethiopia, pension contribution is 18 per cent in the ordinary public and private sector, while security organs contribute 32 per cent. In Rwanda, he said, all employees in the private sector and public, as well as the security organs, contribute the same rate – 6 per cent.

The pension contribution rate in Tanzania is 20 per cent, while it is 15 per cent in Uganda; and 10 per cent in Burundi (with security organs contributing 15 per cent), while contribution in Kenya is 10 per cent, Murangwa indicated.

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Role of pension contribution in private sector growth

RSSB Chief Executive Officer Regis Rugemanshuro said that the pension fund currently has about Rwf2.6 trillion asset under management.

The social security fund was healthy, Rugemanshuro observed, indicating that from 2019/20 to 2023/24, RSSB’s net assets increased by 15 per cent compounded annual growth rate, adding that it registered more than Rwf418 billion in net income in 2023/24.

According to Rugemanshuro, only nine per cent of public and private sector workers in Rwanda are covered by the scheme.

This implies that about 90 per cent of Rwanda’s working population are employed in the informal sector and are not covered by the mandatory pension scheme.

Explaining the situation, Murangwa said that "the reason is that our private sector has not yet grown to get the means to perform well,” indicating that there are countries where all employees work in the formal sector and therefore pay taxes and their pension contributions.

"The reason our private sector has not gotten means to perform well is that there is not the required finance to invest on a long-term basis at moderate interest rates which can support the private sector investments for better performance,” the minister said, adding that pension is one of the ways to address such an issue through the availability of long-term funding.