Pension reforms in Rwanda

The structural reforms in the Rwandan pensions sector reached its peak on July 19, 2016 with the gazetting of Regulation No. 04/2016 on the registration of voluntary pension schemes and licensing of pension scheme service providers. The regulations operationalised Law No. 05/2015 of 30/03/2015 governing the organisation of pension schemes. The new law seeks to create a platform for the regulation and supervision on the establishment and management of pension schemes, promoting growth and stability in the sector. It is notable that prior to the enactment of the new legislations, employees and issuers of pension products in Rwanda had no structured manner of establishing and managing voluntary occupational pension schemes. As a result, the pensions sector largely remained haphazard with its contribution to the development of the financial services sector remaining shallow. Now, pension reforms often have significant national economic benefits. Pensions when well managed often entail the accumulation of institutional capital that may be invested in the national economy. Globally, the pensions sector has been credited with deepening financial markets in leading economies and Rwanda should not be left behind. The establishment and management of voluntary occupational pensions have for a long time remained shrouded in secrecy with participating members hardly receiving information on types of schemes in which they participate or even the benefits offered. Sponsors and service providers have hardly offered training or education on voluntary pensions. For the first time in Rwanda, private pensions will be established and managed on an organised footing and members of pension schemes will have opportunity to understand the schemes in which they participate as well as realize value of the services offered by different professional service providers. The absence of regulations and limited involvement of professional service providers largely explains the negative perception of retirement savings as participants hardly understand the structure of their schemes, how the funds are managed or the benefits payable. There are a number of benefits to be derived from participating in an approved or registered pension scheme for both employees and employers. However, the few pension schemes already in existence have not been able to derive most of the benefits in the absence of a regulatory framework in the past. With the new laws, the next few days should witness a rush by existing voluntary occupational pension schemes to comply with the new regulations as well as the entry of professional service providers that should go a long way in deepening the financial markets as well as added value to members of voluntary pension schemes. It appreciating the role of voluntary occupational schemes, it is important to note that in ideal situations, there are three basic pillars of social security with national or in some cases universal social security schemes occupying the first pillar. Voluntary occupational retirement schemes occupy the second pillar with individual retirement savings occupying the last pillar. The growth and development of occupational voluntary retirement savings alongside the national social security scheme and individual savings should therefore complement the overall objective of a comprehensive social security system in Rwanda. The schemes consequently do not compete but complement each other. The three pillars of social security should therefore not be confused as alternative as each occupies a different pillar in the provision of social security. Considering the contribution levels to the mandatory social security scheme, the tax incentives and the ongoing structural reforms, Rwanda remains one of the few countries in Eastern Africa with highest potential in the growth of voluntary occupational pension schemes and development of a robust social security system. The writer is a Pensions Consultant Email: fnyayieka@gmail.com

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Pension reforms in Rwanda