By Jean Bosco Mbarute

In low-income countries and middle-income countries, the coverage of contributory pension scheme is low and even stagnant. At the same time, older people are less able to rely on family and community support as a result of growing urbanization and migration. Then low-income workers and the poor simply cannot save enough to prepare for their old age. As a remedy, many countries are considering or have already implemented various forms of retirement income transfers aiming to guarantee a minimum level of income during old age.

This thesis investigates the role of old-age social pension in alleviating poverty in Rwanda. Using the most recent Rwanda data survey of integrated household living conditions survey, 2010. We have elaborated 2 scenarios of universal pension scheme with different retirement age for benefit level equivalent to the national average consumption. On one hand a social pension with 65 years as retirement age, on the other hand a social pension with women at age 60 and men at age 65.

The quantitative analyses indicate that universal pension benefits have sizeable impact on poverty reduction amongst households, with elderly members. Therefore, we have found that the social pension will decrease the headcount and poverty gap at the extent of 3.36% and 4.16% per year, respectively scenario 1 and scenario 2 assuming no savings from social transfer benefits. We have got results which confirm the ILO estimated model for the low-income countries, finding that at around 1% of GDP they can put in place a social pension.

Nevertheless, both scenarios for Rwanda have got the fiscal costs which seem affordable and reasonable between 0.7% and 1.2% of GDP, using the projection period 2015 to 2035 for universal pension. Definitely, it is therefore possible to realize smaller results for poverty reduction in Rwanda, with a much lower fiscal cost by limitation of pension-based targeting. All pensioners of contributory scheme would get 50% of benefit level. In this case, the aggregate fiscal cost will be less than 1% percent of the GDP.

source: SSRN