Pension system: approaching elections leave little chance of reform

The electoral context risks nipping in the bud the reform of the retirement system suggested by the IMF. The issue is, however, of national scope with the demographic challenge.

The International Monetary Fund (IMF) warns Mauritius that pension costs are expected to continue to impact the country's overall spending. The institution's Article IV report on Mauritius indicates that benefits paid for the year 2022/23 are approximately 7% of Gross Domestic Product (GDP). Contributions are estimated at around 2%. The data published by Statistics Mauritius proves the IMF right. Indeed, there were 266,402 pensioners who received the Basic Retirement Pension (BRP) last April compared to 256,226 during the corresponding period of last year and 264,601 in January 2024, according to figures from Statistics Mauritius.

Radhakrishna Sadien, president of the State Employees' Federation, points out that the aging of the population in Mauritius is not new. The latest reports that have been carried out, whether by actuaries or the IMF, show that the ratio of taxpayers and pensioners is disproportionate. This is, in short, one of the reasons put forward by the IMF to emphasize the need to reform the retirement system in Mauritius.

Economist Manisha Dookhony adds that the country's pension system is not sustainable in the long term. A revision is necessary, according to her, because the CSG directly finances the pension budget. “It takes thought to move forward with a fund for the long term. The IMF is right to suggest reform. Mauritius needs consultants, why not the IMF, for a detailed analysis of what is appropriate for Mauritius in terms of reform and the best way to finance this,” continues the economist. Is the 2024-25 Budget appropriate to resolve this issue?

A private actuary fears that the chances that the Minister of Finance will implement what the IMF says regarding the reform of the pension system are tiny, if not non-existent. According to him, popular pressure is too great. “The government has ignored the institution's recommendations in recent years. Why will he take them into consideration now? With the elections in its sights, it would be shooting itself in the feet for the government to offend the elders,” he argues.

Pensioners representing a significant electorate, Manisha Dookhony is of the opinion that the government will not touch the retirement system this year. For now, she argues, each government returns the ball to their successor's court for possible reform. “However, this reform will have to happen sooner or later. Although unpopular, reform of our retirement system is a necessary evil for the country. From an economic point of view, this is a problem that must be addressed,” underlines the economist.

Retirement pension

Faced with the flagship measures announced by the Opposition Alliance, all expectations are allowed for the 2024-25 Budget, which some believe will be a response to the Opposition. With this in mind, rumors of a new review of the Basic Retirement Pension (BRP) in the face of the cost of living are well underway. The consumer price index for April 2024 was 103.2, according to Statistics Mauritius. The prices of goods and services increased by 3.2% compared to the base period from January to December 2023. The private actuary concedes that despite the increase in the minimum wage, the current amount is hardly sufficient in the face of the high cost of living. He therefore proposes to support those who are at the bottom of the ladder.

However, he warns, a new universal pension increase and a unilateral rise in wages will have economic consequences. “Will the government use the same trick by devaluing the rupee and creating inflation to finance a further rise? Any artificial increase in the BRP does not help the poorest, because prices will rise through inflation, taxes and corporate profits. Targeting is certainly not a popular measure, but it can be effective,” argues the actuary.

For her part, Manisha Dookhony rules out the possibility that a measure concerning an increase in the BRP would be included in the 2024-25 Budget. For good reason, she explains, the government will not be able to afford such a review, having other expenses underway.

Questions to…Kevin Ramkaloan, CEO of Business Mauritius: “Any additional allocation should be targeted”

Rumor has it that the retirement age will be reduced to 55. What could be the impact of such a measure if it comes to fruition?
You should know that internationally, the trend is towards increasing the retirement age. According to observations recently made by the International Labor Organization (ILO) and the OECD, it is even expected that the retirement age, overall, will increase by at least two years until 2060, and this, following the aging of the world population. However, it is also understood that certain specific sectors, such as those where physical labor is most demanded, require a different revision of the retirement age. For Mauritius, it will be important to ensure that such a decision is taken after consultations and analyzes of economic as well as social elements.

Some expect that the retirement pension will be revised upwards again. Is this necessary to enable seniors to cope with the cost of living?
The latest increase in the old age pension in Mauritius took place this year, almost in parallel with the increase in the guaranteed minimum income. So that we can continue to support our economy in the long term, and with it social protections, it will be important to balance the impacts on public debt. In my opinion, any additional allowance should be targeted and not necessarily through the universal pension which is, remember, paid from the age of 60 for a person still part of the active population.