The central bank has petitioned Parliament to expedite the passing of the draft pension bill intended to reform the sector and encourage more savings.
It will also unlock investment opportunities in the finance sector by allowing in private players in the pension sector.
The new law, to govern the functioning and supervision of mandatory and voluntary pension schemes, has been before Parliament for sometime and the National Bank of Rwanda (BNR) says its efforts to institute reforms in the pension sector have been curtailed by the delay in passing the legislation.
One of the provisions in the new law that BNR says will go a long away in reshaping the sector is chapter III that seeks to introduce voluntary savings such as occupational pension scheme and personal retirement saving accounts.
BNR, the regulator of all finance institutions, says this would allow in private players into the sector now managed exclusively by the Rwanda Social Security Board (RSSB), created from the merger of the National Social Fund and RAMA.
According to BNR governor, Claver Gatete, other proposals in the law such capping insurable earnings are needed so as to mobilize more savings position the sector on a firmer financial ground.
RSSB has proposed to cap insurable earnings to about Frw 400,000 and introduce a new platform called a provident fund--a form of savings account into which a member's contributions above the earnings ceiling are kept. This will operate alongside the current pension scheme.
The proposal to cap insurable earnings (the contributions that accrue basic pension) is aimed at ensuring sustainably after a study by actuaries identified loopholes in the current system that would render the business unsustainable beyond 2030.
Under the current open-ended system, where insurable earnings go even beyond 100% of gross salary when the contribution rate is 6% (the lowest in Africa), the pension scheme could collapse in the long term because there will be many retiring people claiming lump sum amounts of money against fewer savings.
The proposed new law also seeks to increase retirement age from 55 to 60.
"Without the new law, we cannot do much," said Gatete. He appealed to the legislators to expedite the enactment of the new law.
Pension is key component of the country's financial sector with assets worth Frw 334 billion as of December 2012, having grown from Frw 192 billion in 2011. Financial experts say there is still huge potential to mobilize more savings when the sector is opened up to competition.
In a liberalized setup, workers will be free to save with other schemes (for example personal retirement saving accounts) run by private operators such as commercial banks, insurance companies, collective investment schemes and private pension funds alongside the mandatory scheme with RSSB. The private operators must be licensed by the regulator, BNR.
Personal retirement savings accounts are meant for self-employed people and those who may be employed but are not covered under another voluntary pension scheme, the occupational pension that is based on an understanding between the employer and employees.
The new law givers savers flexibility to move their savings to any private operator which they think guarantees better returns.
"With the exception of mandatory pension schemes, an accountholder may transfer assets from an account he or she has established to any other pension scheme in which he or she is a participant," the draft bill states.
According to the draft law, savings by individuals kept in the provident fund under the mandatory scheme can be accessed by members as they wish to cater for pre-retirement benefits such as buying/ building houses or paying school fees for children.
Like many developing countries, the saving culture in Rwanda remains poor with a saving rate of just 4.2% of GDP--one of the lowest in sub-Saharan Africa.
"We want to develop a comprehensive system with more benefits to members and at the same time meet national needs. A system that increases national savings; because when savings increase, investment takes place and increased investment lead to economic development," Emmanuel Kayitare, the RSSB director of pension and pre-retirement benefits, told this news paper in previous interview last year.
The new law also proposes a strict regulatory framework to safeguard workers' savings in a liberalized setup.