A recent article in the Rwandan daily ‘The New Times’ called for the government to reconsider the exclusion of social pensions from Rwanda’s flagship social protection programme – The Vision 2020 Umurenge Programme (known as VUP). VUP aims to help all of Rwanda’s poor yet the article raises concerns that lack of focussed support to older people has resulted in them receiving inadequate assistance. There are worries that VUP will do little to address or reduce old age poverty.
The article suggests a means-tested social pension should be implemented with a transfer amount of Rwf 7,000 a month and an age of eligibility of 70. According to our pension calculator, a universal pension of this amount to everyone over 70 would reach 40 per cent of older Rwandans and cost around 0.4 per cent of Rwandan GDP or 1.51 per cent of government expenditure. Currently the Government of Rwanda spends an estimated 5.1 per cent of GDP on social protection.
In light of this, here we will explore further some of the thoughts in the article.
Background to Rwanda
Like everywhere in the world, the population of Rwanda is ageing. In 2010 those over 60 were estimated to account for 4 per cent of the population. In 2050 this is expected to be 10 per cent. Poverty levels remain high, with an estimated 77 per cent of the population living below the poverty line.
Pension coverage
The article acknowledges the lack of data on formal pension coverage in Rwanda but concludes, optimistically, that low pension coverage will become less of an issue in the future. However, a report by the Rwandan Government in 2009 suggested that, due to the huge informal sector, only 7 per cent of the population were eligible for a pension and only 2.3 per cent were actually covered by a pension. Whether the income these pensions provide is adequate is another issue.
So, with an estimated 97.7 per cent of the population without a pension the need for higher coverage is apparent. A huge informal sector and high poverty levels are difficult to address with traditional contributory pensions but hold little challenge for social pensions.
Means-testing
The article states that means-testing, the exclusion of the non-poor or better off, would be the best option for Rwanda. While this intuitively makes sense as a way to save money and increase transfers to the poor in reality this aim can be extremely challenging. Means-testing takes time, money and capacity. Poverty levels in Rwanda remain high and there is little accurate data available about old age poverty rates. This means that even knowing how many people would need to be excluded – and whether it was ‘worth it’ – is impossible.
Transfer Amount
A transfer amount of Rwf 7,000 (US$ 25.09 (PPP)) a month would be equal to 65.69 per cent of the international poverty line and would undoubtedly improve the lives of those receiving it. However, inflation in Rwanda is high – estimated to be 7.8 per cent in 2011 – and existing benefits are adjusted irregularly. With high inflation it would not take long for any transfer amount to become seriously undervalued. To be meaningful in the long term programme design would have to make provisions for regular adjustment.
Is it affordable?
The article is confident that a social pension is an affordable approach to providing a minimum income in old age – and so are we. But discussions of affordability must consider the long and medium as well as the short term. HelpAge International has helped governments in Asia, Africa and the Caribbean assess the feasibility of social pensions. There is no “one size fits all” but by considering the country specific context it is possible to reach an affordable and sustainable means of providing a minimum income to older people.