Last week, Rwanda Social Security Board (RSSB) issued a press release titled “RSSB Engages the Private Sector on Pension Reforms and Expected Benefits.” The headline-grabbing announcement detailed an increase in the pension contribution rate, set to rise from the current 6% to 12% in January 2025, with plans to reach 20% by 2030, equally split between employers and employees. Understandably, the news sparked debate and discontent, particularly on X (formerly Twitter), where some reactions bordered on accusing RSSB and the government of extortion. It’s human nature — especially for employees — to resist any deductions from their net pay, no matter how small. It feels particularly painful when the decision is beyond your control. But before joining the uproar, it’s worth taking a closer look at the bigger picture. The policy change The reforms undeniably mean smaller paychecks for employees. For instance, with Pay As You Earn (PAYE) at 30% and the RSSB personal contribution increasing to 10%, an employee would retain just 60% of their gross salary. For employers, the reforms bring additional costs, as contributions are calculated on gross salaries. Yet, employers have the flexibility to absorb some of the cost increases to support their employees. Those posting healthy profits may wish to consider this as a morale booster — an investment in employee satisfaction. Otherwise, employees might begin wondering if their employer truly values their well-being. Why the uproar? Lower disposable incomes can reduce spending on non-essential goods and services, potentially slowing economic growth. Employers, too, face added financial pressure, which could lead to hiring freezes or reduced budgets for staff benefits. These are valid concerns, but are they the full story? A look at regional pension contributions reveals a different narrative. Tanzania already mandates a 20% contribution of gross salary, Uganda stands at 15%, Kenya at 12% of pensionable earnings, and Burundi ranges between 10% and 14.6%. By comparison, Rwanda’s current 6% contribution is a clear outlier. Seen in this light, the increase was inevitable. The bigger picture RSSB provides compelling reasons for the reforms. The current contribution rate has remained unchanged since 1962, despite life expectancy in Rwanda increasing from 43 years to nearly 70. As people live longer, pensions must stretch further. By acting now, Rwanda is proactively avoiding the pension crises that have plagued aging populations in other countries. There’s also good news for current pensioners: RSSB plans to increase benefits, particularly for lower earners. The last adjustment, in 2018, raised the lowest pension from Rwf5,200 to Rwf13,000. Given rising inflation and the declining purchasing power of our currency, further increases are both timely and necessary. Future investments and growth Another positive lies in how the additional contributions will be managed. RSSB’s return on investment (ROI) has grown from 4.9% in 2019 to an impressive 11.08% in 2023. Their plans for these new funds are ambitious: a Rwf30 billion fund to support small and medium sized enterprises (SMEs), investments in capital markets for affordable lending, and a dedicated research and development fund to promote innovation. These initiatives could spur economic growth and create opportunities for businesses and entrepreneurs alike. Still, contributors might have different priorities depending on their stage of life. Younger workers may prefer aggressive investments in large-scale infrastructure projects like toll roads, renewable energy plants, and water facilities with long lifespans. Older workers, approaching retirement, might favor more conservative, liquid investments. Balancing these needs will be crucial for RSSB. Transparency and building public trust While these reforms appear forward-thinking, they will succeed more if RSSB builds public trust. Contributors deserve to know how their money is invested, in a more transparent way. One of the disgruntled people on X, actually referred to the Office of the Auditor General’s report on the poor performance of RSSB’s equity investments, it is therefore, paramount that RSSB ensures robust oversight to avoid financial mismanagement. In the end, these changes, while initially uncomfortable, offer significant long-term benefits. For those of us who struggle to save, mandatory contributions secure a better retirement. With a proactive strategy and prudent investment, RSSB is laying the groundwork for a financially stable future. But transparency must be the cornerstone of this reform. As contributors, we have the right to demand clarity and accountability from RSSB. After all, this isn’t just about deductions—it’s about investing in ourselves and Rwanda’s future. The author is a Certified Public Accountant based in Kigali.
