Starting January 2025, once the new pension reforms take effect, the pension contribution rate is expected to increase from the current 6 per cent of an employee’s basic salary to 12 per cent of their gross salary, according to Rwanda Social Security Board (RSSB).

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The pension contribution rate is also expected to reach 20 per cent (of an employee's gross salary) by the year 2030, split equally between employer and employee. To facilitate a smooth transition, the increase from 12 per cent to 20 per cent will be implemented in four years with a 2 per cent annual upturn from 2027.

Pension benefits to retirees are also expected to be increased, though RSSB has not yet come up with details on the increment for pensioners depending on their categories or benefit ranges.

Here are six things you should know about the reforms:

1. Considering gross salary instead of basic salary

Information The New Times got from RSSB shows that the reforms first seek to harmonise the pensionable salary – that on which pension contributions are calculated – with the taxable salary – that on which PAYE or income tax is calculated. This move, RSSB indicated, will see pension contributions being calculated based on gross salary rather than basic salary.

As such, transport allowances, which were not included in the determination of pension contributions, will be covered going forward.

Employees will benefit from these reforms, RSSB observed, indicating that the immediate benefit of changing the pensionable from basic salary to gross salary is that employees will now be assured that their contributions to the pension fund are being declared as expected.

2. The reforms were proposed by three pension fund studies

As per RSSB, the reforms were long overdue given that they were proposed by all the last three actuarial valuations of the fund since 2012. The valuations were made to assess its financial position including assets and liabilities. Instead of implementing reforms that boost savings with the fund, reforms impacting the fund’s outflows were effected.

Even though retirement age was extended to 60 years in 2015 – from 55 years previously, the move was assessed to bring no significant positive impact to the sustainability of the fund, RSSB observed.

On the other side, benefits were increased in 2018, a move that further threatened the fund’s financial viability.

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Since the actuarial valuation of the fund in 2012, multiple attempts to increase the contribution rate failed as it was always not the right time for the reforms, officials explained, adding that, indeed, there have been economic shocks that made it hard to implement the desired reforms.

3. Addressing 62-year-old small pension contribution rate

The current contribution rate was established in 1962 when life expectancy [at birth] was 47 years and had not been updated until today. According to the 2022 population census, life expectancy in Rwanda increased to 69 years.

Meanwhile, the benefit package of pensioners has been increased over time, with the latest increment made in 2018.

The Minister of Finance and Economic Planning, Yusuf Murangwa, told journalists on December 2 that it was high time the pension contribution rate that was set over 60 years ago got revised, given the new developments in the country’s socio-economic sector.

"Research showed that in the entire Africa, it is [in Rwanda] where contribution rate is lower than in all other countries,” he said, citing Ethiopia where pension contribution is 18 per cent in the ordinary public and private sector, while security organs contribute 32 per cent, Tanzania with a contribution rate of 20 per cent, and Uganda with 15 per cent.

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4. Strengthening the pension system

The reforms are intended to build a much stronger and more competitive pension system that aligns with the current realities of the country.

With improved contributions to the pension fund, RSSB stated that it will be able to intensify its investments ensuring the fund’s long-term sustainability, and also explore further benefit improvements that could be performed.

5. A fairer pension contribution rate for future generation?

According to RSSB, increasing the pension contribution rate to a fairer 20 per cent also addresses the intergenerational equity issue by ensuring that future generations of employees are not paying significantly more than the current generations, which would make it a burden for them.

6. Pension benefits increment

RSSB announced that the current pension benefits package will also be revised upward, starting from January 2025, to reflect the current cost of living, beginning with those receiving the lowest pension amounts.

The overall pension benefits envelope is expected to increase by about 20 per cent, equivalent to about Rwf12 billion more per year. It will be distributed among pensioners with more weight given to the lower earners category, especially pensioners receiving Rwf13,000 a month, the lowest retirement benefit.

The increase was determined based on what the fund can accommodate given its expected future cash flows and membership base growth. As explained, equitable distribution of the increase among pensioners ensures that those earning small benefit amounts can thrive against recent inflationary pressures.

In the year ended June 30, 2024, the pension benefits paid amounted to Rwf53 billion paid to slightly more than 58,000 beneficiaries (pensioners), data from RSSB shows.