SEYCHELLES PENSION SCHEME WELCOME TO THE CONSULTATION PROCESS ON PENSION REFORM
SEYCHELLES PENSION SCHEME INTRODUCTION The Seychelles Pension Scheme has been in operation since January 1991 as a complimentary scheme to Social Security Fund in order to improve the level of retirement pension. To date the Scheme has paid retirement benefit in a lump sum equivalent to the amount of contributions in the member’s account with interest.
SEYCHELLES PENSION SCHEME INTRODUCTION CONT…… In view of current trend of alleviating poverty-to-poverty prevention with the aim of providing a more comfortable and stable net thus improving of the current pension payable taking into account the current standard of living, it felt that the Seychelles Pension Scheme should be revamped with input from employers and employees. This is to enable the introduction of a new Pension program that would cater for all employees in the formal employment and self employed workers. The aim of the programme is to ensure that all members (workers) enjoy from the Scheme a retirement pension as an earning replacement.
SEYCHELLES PENSION SCHEME HISTORICAL PERSPECTIVE Civil Service pension In force during the Colonial period and after Independence up to the 31st December 1978. Abolished on 1st January 1979. 2/3rd of salary on completion of minimum period of 10 years continuous service, Retirement at the age of 55. Lump sum payment for those with less than 10 years Service
SEYCHELLES PENSION SCHEME HISTORICAL PERSPECTIVE CONT…. National Provident Fund - (29th March 1971 ) Coverage: Unestablished/temporary government workers and private sector workers Main Benefit: Payment of Balance in the Member’s Account as a lump sum on retirement. Abolished on 1st January 1979
SEYCHELLES PENSION SCHEME Social Security Scheme Came into operation on the 1st January 1979 Coverage = all Seychellois workers (public, private Sector and self employed workers. Contribution: 5% of employees monthly emoluments and average of 25% employees’ emoluments Benefits (current rates) Sickness R1250 Maternity R1250 Invalidity R1500 Survivor, R1250 Funeral R1500 Retirement pension: R1550 Disablement R1250 Orphan and Abandoned child’s benefit R750 Retirement age: 63
SEYCHELLES PENSION SCHEME Purpose A social insurance scheme to provide a minimum safety net to alleviate poverty. Challenges No doubt the scheme has provided the basic insurance. However the expectation is changing to a society, which will not only alleviate poverty prevention but one able to provide a more comfortable and stable safety net. The emphasis is an emerging retirement pension, which will enable retirees to live in basic comfort.
SEYCHELLES PENSION SCHEME Private Pension Schemes From research carried out, it is noted that there are only two companies in Seychelles offering an in house pension plan to their employees namely
SEYCHELLES PENSION SCHEME • Private Pension Schemes CONT….. • Barclays Bank (Seychelles) Ltd • Cable and Wireless (Seychelles) Ltd • Retirement benefit at the normal retirement age of 60 based with provision for early retirement at the age of 50. • The bank contributes 6% of salary whereas Cable & Wireless’ contribution is 16% • The benefit is paid as a lump sum or the member may choose to use all or part of the benefit to buy a pension from an insurance company.
SEYCHELLES PENSION SCHEME THE SEYCHELLES PENSION SCHEME THE NEED FOR REFORM Realizing the need for a second pension to move away from the minimum safety net to provide a comfortable retirement, the Seychelles Pension Scheme was introduced in January 1991 as a complimentary scheme to the Social Security Scheme (Fund) to achieve that objective.
SEYCHELLES PENSION SCHEME • The scheme provides for the following benefits: - • Monthly pension for life at the age of 63 (presently being paid in a lump sum) • Pre-retirement death gratuity • Post retirement death gratuity • Pre- retirement migration allowance • Post retirement migration allowance • Invalidity (refund of contributions)
SEYCHELLES PENSION SCHEME The principle of the Scheme has been that the employee would determine his or her own retirement package by making voluntary contributions in addition to the compulsory contribution by the employer of R50 per month and R25 by the employee. While efforts have been made to maximize voluntary contributions, it has not been easy. For example, voluntary contributions by employees amounted to 3.3% of the total contributions of R25m received during the year 2003.
SEYCHELLES PENSION SCHEME Obviously this is fraught with difficulties particularly the reluctance of employees to make such contributions and perception that the state should provide for their retirement through social security contributions. Also generally younger workers express little interest in their pension arrangements until in many cases it is too late.
SEYCHELLES PENSION SCHEME The low expectations of members to make voluntary contributions and the non-making of such contributions affected greatly the level of pension/benefit they will get on retirement.
SEYCHELLES PENSION SCHEME MEMBERS’ EXPECTATIONS – FEEDBACK RECEIVED FROM SOME MEMBERS Some of the major problems faced by the Social Security Fund and the Pension Scheme stem from members’ expectations that are also based on their understanding of the schemes. This situation is compounded by the realization that low-level salaries do not allow for much savings for retirement.
SEYCHELLES PENSION SCHEME MEMBERS’ EXPECTATIONS – FEEDBACK RECEIVED FROM SOME MEMBERS CONT.. Most workers grew up in a socialist environment in which most people at the time considered the government as being responsible for every facet of their lives. This view of society prevails among a number of people up to the present day. Many employers and employees still consider that they are already making a substantial contribution to the social security scheme. Why not use the contribution to pay for higher level of retirement pension?
SEYCHELLES PENSION SCHEME MEMBERS’ EXPECTATIONS – FEEDBACK RECEIVED FROM SOME MEMBERS CONT… Some members felt that with the heavy pressure of life they cannot contribute more and will not reach retiring age of 63 let alone the life expectancy of 73
SEYCHELLES PENSION SCHEME THE PROPOSAL
SEYCHELLES PENSION SCHEME FUTURE DIRECTION– The Way Forward- Recommended Proposal Reform of the Seychelles Pension Scheme Coverage: • All public and private workers in formal employment. • Self-employed persons paying business tax and encourage to make voluntary contributions to the Scheme
SEYCHELLES PENSION SCHEME Financing: From existing funds of the Seychelles Pension Scheme - employers and employees mandatory contributions for the recommended increase in pension, through the proposed loan scheme referred to on page 14 and possible sharing of the cost by the Social Security Fund or Government.
SEYCHELLES PENSION SCHEME Financing: Cont… Mandatory and Voluntary Contributions will continue to be allocated to the member’s account at the Seychelles Pension Scheme for record purposes and for payment of voluntary contribution in a lump payment on retirement, death gratuity, or in case of refund permissible under the new regulations of the scheme for natural disasters, serious illness or in the case of periodic needs for cash to attend to personal and domestic matters every five years. However contributions made by the Social Security Fund or Government of Seychelles will be credited in a general account for use for the payment of pensions.
SEYCHELLES PENSION SCHEME Investment of Funds.
SEYCHELLES PENSION SCHEME Benefits and Eligibility: Benefits payable are to be financed by contributions from workers, employers, and social security fund in respect of the social security retirement pension and from the national budget when and if the need arises. The scheme provides:
SEYCHELLES PENSION SCHEME In the case of retirement, Normal retirement pension.This may be based on a percentage of the employee’s average monthly salary up to a period of five years preceding retirement. For example, for lower paid workers/members at the rate of 70% of the monthly salary*. The others may be granted a pension of between 65% and 55% of the average salary received during the period of five years preceding retirement at the age of 63 or new retiring age or normal retirement on completion of 33 years of service.
SEYCHELLES PENSION SCHEME In the case of retirement, cont… *salary is defined as remuneration in money due or granted in respect of employment. This includes overtime pay and allowances.
SEYCHELLES PENSION SCHEME In the case of retirement, cont… 72% of workers or 26,572 are earning up to R2, 500 and 60% salaries amount to R1, 550, which is the social security old age pension and hence a pension of 70% of salary is recommended for lower paid workers. The range of between 70%, 65% and 55% should help to prevent the widening of pension earnings inequality than if only a fixed percentage of salary was adopted for all workers.
SEYCHELLES PENSION SCHEME In the case of retirement, cont… Early retirement pension option for members who have reached the age of 55 years. A member may retire on reaching the age of 55 for reason of ill-health or on completion of 20 years service with the approval of their employer. Retirement grant (gratuity) - To pay/refund of voluntary contributions paid under the current scheme on retirement in order to prepare for retirement.
SEYCHELLES PENSION SCHEME Besides attaining the retiring age the entitlement for retirement pension is that the person should have been in full time employment for a period of ten years or in case of a new employee completes such period. Where a worker (member) attains the age of 63 before completing a period of ten-year in employment, the worker shall be refunded his or her contributions made to the scheme. The worker shall then apply for a social security old age pension.
SEYCHELLES PENSION SCHEME Employees who resigned or whose service was terminated will not be eligible for early retirement payment. However the monthly salary of self-employed workers shall be the average yearly profit declared with business tax during the period of 5 years preceding retirement divided by 12 months. This qualification is required to avoid salary fixing by those expected to retire.
SEYCHELLES PENSION SCHEME In the case of a person who is unemployed for a period not exceeding 10 years and who has reached the age of retirement, the salary to be used for calculating his or her pension shall be the average monthly salary during the period of five years preceding his or her last employment. Where a person has not been employed at all or not been employed for a continuous period in excess of 10 years, he or she shall be eligible for the social security old age pension. The retiree shall be refunded his or her contribution made to the scheme.
SEYCHELLES PENSION SCHEME In the case of death before attaining retiring age A surviving spouse’s pension at 80% or the member’s full pension. The pension will cease if the surviving spouse remarries or cohabits with any other person or can continue the pension. A children’s pension to be paid to the guardian of deceased member’s children under the age of 18 who immediately prior to his or her death were being maintained by the deceased. This pension shall not be payable if the surviving spouse (mother or father of the children) is receiving the surviving spouse’s pension.
SEYCHELLES PENSION SCHEME In the case of death before attaining retiring age cont… The pension shall be at the rate of 80% of the monthly pension or the member’s full pension, which the member or self employed worker would have earned if he has retired prematurely or on attaining the retiring age of 63 or new retirement age. A death benefit for the member’sdependant equivalent to his or her mandatory and voluntary contributions if deceased has no spouse or children to benefit from a surviving spouse pension or children’s pension. When death occurs during retirement, the gratuity payable to member’s spouse or dependant shall be equivalent to one month of his or her pension.
SEYCHELLES PENSION SCHEME In the case of disability A disability pension to a worker who becomes disabled before reaching the age of 63 years or new retiring age. The pension shall be the same as for premature retirement.
SEYCHELLES PENSION SCHEME In the case of Migration Refund of balance in the Member’s account. Members should provide proof including sworn affidavit and resident permit that they are leaving Seychelles permanently.
SEYCHELLES PENSION SCHEME In the case of natural disasters and serious illnesses or in the case of periodic needs for cash to attend to personal/domestic matters Right of members to draw down 50% of their voluntary contribution in respect of seriousness illness or in the case of natural disaster or every five years in the case of periodic needs for cash to attend to personal and domestic matters.
SEYCHELLES PENSION SCHEME This is to encourage voluntary contributions. Members will be encouraged to make voluntary contributions or increase them so that in cases of emergency they can have more funds in their accounts for use.
SEYCHELLES PENSION SCHEME Self employed workers There are above 2,770 registered self-employed workers including taxi operators, registered farmers, fishermen and freelance artisans. As part of the effort to propose a universal pension scheme thus applicable to all Seychellois workers self-employed workers have been included.
SEYCHELLES PENSION SCHEME Self employed workers cont… Although they do not pay social security contributions and a few are paying minor contributions to the pension scheme they pay business tax. This can be at the estimated rate of R12, 000 a year assuming that they can make a profit of R50, 000 if business is good. Based on the principle that they contribute through taxation, there is a good reason that they should be included in the scheme.
SEYCHELLES PENSION SCHEME • Self employed workers cont… • The cost and financing of pensions for self-employed workers are as follows:- • Year • 2006 R819,280 • 2007 R1,159,144 • 2008 R1,581,093 • 2009 R2,074,778 • However since 98% are not members of the Scheme then a government contribution into the fund will be required to meet the cost of their pension as the use of members’ funds for non members will result in representations of unfairness by members.
SEYCHELLES PENSION SCHEME Self employed workers cont… However self-employed workers will be encouraged to contribute voluntarily to the scheme so that they can also receive a lump sum payment on retirement.
SEYCHELLES PENSION SCHEME POSSIBILITY OF MEMBERS BEING GRANTED LOANS AGAINST THE CONTRIBUTIONS The loan should 50% of the contribution to be repaid with interest by monthly deductions from salary. Possibility of using your pension contribution as security/mortgage to obtain a loan.
SEYCHELLES PENSION SCHEME IMPACT OF THE NEW PENSION’S PROPOSAL The Seychelles Pension Scheme The main impact will be mainly on the operation and compliance
SEYCHELLES PENSION SCHEME IMPACT OF THE NEW PENSION’S PROPOSAL cont.. Operation The allocation of member contributions to their account will continue under the Act in order to pay for refund of migration allowance, voluntary contributions and death benefit. In respect of any contribution made by the social security fund this will be credited to pension scheme account for the purpose of payment of pensions It will be a statutory obligation for all employees to provide the Pension Scheme on a monthly basis with salary information.
SEYCHELLES PENSION SCHEME IMPACT OF THE NEW PENSION’S PROPOSAL cont.. Compliance/Enforcement The Pension Scheme does not have the statutory authority required for more effective enforcement of contribution conditions. As a corporate body it can only sue for non-payment of contributions but it is not an offence not to contribute or when failing to provide salary return as is the case with social security. It should be granted also the power to inspect employer’s records and unfettered access to ancillary information.
SEYCHELLES PENSION SCHEME IMPACT OF THE NEW PENSION’S PROPOSAL cont.. Compliance/Enforcement cont.. Final amendments to the Pension Scheme Act to effect changes required will be made once approval of the proposal is obtained. Relying principally on education and persuasion to encourage compliance is not enough. There must be sufficient well-trained staff including inspectors. The Compliance Section is in need of strengthening its enforcement activities thorough focused and timely inspections and being more proactive.
SEYCHELLES PENSION SCHEME IMPACT OF THE NEW PENSION’S PROPOSAL cont.. Compliance/Enforcement cont.. Emphasis is being put on proper planning and organization of enforcement, monitoring of progress and based on volume of workload a decision will be taken on the recruitment of an additional inspector.
SEYCHELLES PENSION SCHEME Establishment of a Benefit Division In view that payment of pensions may start either during the year 2005 or by the 1st January 2006, SPS will have to establish a Benefit Division to administer benefits due to qualifying members. Currently the Accounts Section is discharging the responsibility. However in view of a wider range of benefits to be made available there is a need to set up a Division for the administering of benefits and train staff to discharge their responsibilities.
SEYCHELLES PENSION SCHEME Voluntary Contributions The strength of the scheme is based on voluntary contributions, which enable members to determine and enhance their own retirement package. In view of members expectations referred to this has not been a success. Out of the total contributions made to the scheme only 3% is voluntary contribution. Despite the lack of interest by members, the proposed reform will entail revisiting different work sites and explaining to members the rationale of voluntary contributions thus saving early for retirement. There is a need to recruit a Promotion/Sales Officer to market and sell voluntary contributions and increase the level of such contributions.
SEYCHELLES PENSION SCHEME Voluntary Contributions cont…. It is felt that if members can be allowed to draw their voluntary contributions in time of need every five years or when they have contributed a minimum sum (to be decided) then they may find this an incentive to contribute more and will do so. As an incentive to employers to make voluntary contributions in respect of their employees, it is recommended that if they make a voluntary contribution they will obtain a tax deduction of 50% of the contribution in addition to the contribution being exempted from business tax and social security contributions.
SEYCHELLES PENSION SCHEME Voluntary Contributions cont…. In respect of government employees, if an employee makes a monthly voluntary contribution the government, as the employer may match the contribution by 50% that is if the employee makes a voluntary contribution of R100, the government will contribute R50. Another recommendation for encouraging voluntary contribution is to give a higher interest rate of 1% over and above the annual declared rate to those who contribute say R200 to R350 a month and 2% to those who contribute above R350 a month.