Assessment of the feasibility to extend the pension scheme coverage to self employed and workers from informal sector in Rwanda

Master`s thesis in Social Protection Financing at University of Mauritius

Presented by JEAN D’AMOUR NTIBITURA

Mauritius, June 2013

Introduction

Sub-questions and methodology

• What is the relationship of informal sector size and coverage rate?• What are the achievements and challenges in extending coverage

in Rwanda?• What are the strategies used to extend coverage in some

countries?• What are the feasible strategies can be implemented in Rwanda?

• Review of available data from RSSB, National Statistics Institute of Rwanda and online data

• Online survey for RSSB Staff members(136), and randomised survey for a sample of 165 moto taxi drivers operating in three districts

Methodology

Sub-questions

Informal Sector and pension scheme in Rwanda

• Informal sector is employing more than 92% (EICV3, 2010)• 62% of labour force are independent farmers• While the pension coverage was around 7-8%• The total population who are not covered are working in

informal sector

Informal sector size

Pension scheme in Rwanda • Pension scheme in Rwanda is contributory defined benefits• It was inherited from the belgian colonial regime

• The pension law was established in 1957, then revised and amended in 1962, 1974 and 2003

• In 2009 the social security policy for all workers was adopted by Government

Achievements in extending coverage

• Regular and organized sensitization sessions in every district

• Automatic registration of employers in pension scheme

• Working in partnerships with key institutions dealing with informal sector

In Rwanda Increment of more than 7% per year from 2010/2011 for contributors

Challenges for informal sector• Irregularity of income which is which is a major obstacle in ensuring

sustainability of resources• The most informal economy workers work in

agriculture• the design of the scheme is not responsive to the

priority needs of informal sector workers

International experiences in extending coverage to informal

sector• Moving towards universal coverage from the regulation ( China adopted social

insurance law to provide “social security for all” by 2020• Compulsory coverage to self-employed workers ( in 1998, the South Korea has made

the participation of self-employed workers in defined contributory pension scheme an obligation)

• Extending coverage by relaxing the eligibility criteria of existing schemes (In China registered 60 % of increment of contributors from 2005 to 2011 after lowering the contribution rate for self-employed workers )

• Providing monetary incentives to participate ( By 1980s pension reform in Chile, all contributions and investment income treated as tax free)

• Utilizing existing (non-pension) financial sector institutions

(In 2000, the Grameen Bank started to offer a product for

old-age protection . Under this scheme, all borrowers in the Grameen Bank are required to deposit a minimum of 50 taka each month in a personal pension savings account)

Feasible strategies to extend coverage to informal sector and

self employed in RwandaPension scheme designing strategies

• Mandatory adhesion for all workers above the poverty line Affordability? At least 55% of workers may afford to pay a contribution in pension scheme ( poverty rate was 44,9% in 2011) Why mandatory? The myopia phenomena was observed in responses given in the survey by RSSB staff, where the majority(63%) of respondents chose to contribute at very low percentage(3-6%) of their brut salary assuming that the adhesion is voluntary.

• Pension scheme for formal independent workers (Registered in RRA)

91,7% of 116,417 establishments operating in Rwanda were registered with RRA, are not covered

In Chile, from 1981 participation of independent workers in pension scheme is mandatory

Feasible strategies to extend coverage to informal sector and

self employed in Rwanda

Pension scheme designing strategies cont’d• Cooperative members pension schemeAt least 6635 cooperatives registered with Rwanda Cooperative Agency were operating as formal establishments in 2010

Based on experience of Bangladesh with Grameen bank, and Israel with Moshav; it is feasible to design a pension scheme for cooperatives members

Matching the contributions , e.g., a matching of 2 US dollars per month for every contribution of at least 4 US dollars per month can cost 0,03% of GDP• Pension scheme for informal sector workerse.g., in 2009 Kenya launched the Mbao Pension Scheme for the informal sector

Incentives: pre-retirements benefits like education facilities and acquisition of houses, etc… 38,8 % of taxi moto drivers prefer saving for school fees , against 7,3% for the retirement benefit

Feasible strategies to extend coverage to informal sector and

self employed in RwandaImplementation and administration strategies • Auto enrolment and payment of advance on contributions by mobile phone

e.g., the levy of VAT on every airtime scratch in Mauritius, and Health insurance tax levied on mobile services in Ghana; using mobile phone can be the effective and efficient way to boost the coverage rate in Rwanda

Law regarding the registration of identification for every mobile phone user; which will establish a link between mobile phone number and electronic national identification number of every user In 2012 the country's mobile phone

subscribers reached 5,690,75152,7 % of taxi moto drivers prefer to pay their contributions with mobile phone

Feasible strategies to extend coverage to informal sector and

self employed in Rwanda

• Integrated Social security education programme

Implementation and administration strategies cont’d

Is marketing function not necessary? as the adhesion to public pension fund is compulsory.

Most pension funds do promotion (publicity on radios, Tv show, billboards etc). What about other components of 4 P’s of marketing mix ( Product, Price and Place)?

35% of taxi moto drivers have a willingness to contribute 1000rwfs (1,6 USD ) per day in pension scheme, If RSSB pension scheme could facilitate them in their projects (Education, house, acquisition of motorcycle etc…)

Conclusion

• Political willIt is important to emphasize that the strong political will for pension reform from the president of Republic is needed for the success of the whole process starting by the designing of the pension system to the implementation

• Pension reform (Contributory scheme)Like Ghana did in 2008, the pension reform commission may be appointed in Rwanda to prepare and implement a reform to achieve the pension coverage for all

Cost evaluation of strategies to extend pension coverage analysed in this study still to be done

• Social pension: For achieving the pension coverage for all, the Government should study the feasibility of providing the social pension benefits to elderly persons, especially the poor.