Upon request of the Government of Mauritius to modernize the Mauritian Pension System, the World Bank issued a report to advise the Government about the various options which are offered to address the issue of sustainability of non-contributory pension schemes (identified as the '1st Tier' in the report). In the lines of the report, it has been found that despite the fact that BRP is an important costs element to alleviate poverty amongst elderly, the World Bank proposed three ways to reduce the 'fiscal risk'. It has been identified that raising pensionable age is 'compatible with employment patterns'. Based on the past events that occured in Mauritius, the second option-targetting- is more likely to fail again and the third option is the 'least effective with possible constrainsts'.
1.1 Background and context
The background of this study is to make a projection of the population for the years 2013 to 2031. Since population as at 2012 are not available from the CSO, estimating population as at 2012 is a pre-requisite. The methodology used to calculate the forecasted population is the Lee-Carter model which is basically used to forecast the mortality rate.
Get your grade
or your money back
using our Essay Writing Service!
Thereafter, an estimation of BRP per individual has been made, denoted by scenarios A and B, to be able to assess the costs implication of raising pensionable of raising pensionable age to 65 and 70.
1.2 Scope and Objectives
The scope and objectives of this project is to show the costs implicaton of raising BRP pensionable age to 65 and 70 as from 2013. An extension to it is the use of the Implicit Pension Debt (IPD) to illustrate the overall impact on the GDP as at 2012 if the government had decided to raise the pensionable age to 65 and 70 (denoted by scenarios 2 and 3 respectively).
In terms of costs implication, there could have been a significant decrease of 31.06 and 56.90 percent in extending the eligible age to 65 and 70 respectively for the year 2013. It has been found that the overall impact changing the pensionable age to 65 is more significant than increasing the pensionable to 70, from the scenarios performed with scenario A and B.
Furthermore, it has been analyzed that for the year 2012-2031, the overall impact, no matter if BRP per individual increases more than expected over the years, the overall costs impact can be reduced by increasing the eligible age.
Lastly, it has been found that out of the scenarios analysis, it has been found that the best scenario would be that the government will only 1.66% out of the GDP 2012. Otherwise, the worst scenario would amount to 6.51% out of GDP 2012.
1.4 Overview of Dissertation
After the introductory part, the following sections below will follow:
Section 2 is the literature review which is divided into 2 major sub-sections: the theoretical review and the empirical review of various authors and institutions.
The theoretical part describes mainly the following:
-What does the pension system consists of,
-What are the types of unfunded types of pension liabilities that exists,
- The importance of having a multi-pillar system,
-Means testing v/s Universal pension schemes,
-What is Lee-Carter model and its limitations,
-What is the IPD about.
The empirical part describes briefly the Singapore, France, US and Chile Pension Systems. Besides the description part, there is also some empirical evidence about Mauritius.
Section 3, the Mauritian context describes the Mauritian context as a whole,the challenges which the actual pension providers are/ will actually be facing and the evolution and history of the BRP since its introduction.
Section 4 shows that process through which the Lee-Carter model has been used to estimate the population structure, the assumptions to be able to use the linear regression line, the possible scenarios which are being assumed and the outcomes have been analysis including th costs implication of the BRP if the government leaves the BRP pension system unchange or if it had decided to increase the eligible BRP pensionable age to 65 and 70.
Finally, the last section is the conclusion. It describes what the project has achieved and what are the limitations about the scenarios which have been set up to make the analysis. What are the future work that can be done to improve the limitations and how the works can be improved for further analysis.
Always on Time
Marked to Standard
According to Mark Dorfman and Robert Palacios "Pensions and social insurance programs aim to prevent a substantial loss in consumption resulting from old age, disability or death thereby forming an integral part of any social protection system"
The pension system has taken a new dimension at an international level. The World Bank (2008) identified five pillars in the pension system framework. [i]
Zero Pillar- In the form of non-contributory social assistance which is financed by the government out of its budget, usually raised out of general tax.
First Pillar- Mandatory contributions which is linked to earnings; the objective is to replace a portion of average life time pre-retirement income
Second Pillar- Mandatory defined contribution plan which is managed by an independent investment committee.
Third Pillar-This is a voluntary pillar which can take several forms ( DB, DC, Individual Savings)
Fourth Pillar-It is the most modern and non-financial pillar. It includes access to informal support, non financial assets.
The World Bank (2008) further added that for a pension reform to be successful, two criteria has to be fulfilled - the primary criteria and the secondary criteria.
Under the primary criteria, the reform should maintain adequacy, affordability, sustainability, and robustness. Adequacy is the ability to prevent the old-age absolute poverty; Affordability is one with the financial capability of the individual and society; Sustainability is the financial soundness over a foreseeable horizon; Equitability is the ability of the reform to redistribute income in a progressive way; Robustness is the ability to withstand in bad economic conditions.
Under secondary evaluation criteria, "The reform system should be able to contribute to growth and output to be able to provide the promised benefits. To achieve this, a reform should support labor and capital market efficiency, reinforce measures to improve savings mobilization and facilitate financial market development"
In one of the most famous reports, Averting the old Age Crisis: Policies to protect the Old and promote growth, it was identified that most of countries will be facing transition changes and the sustainability of several pension systems is questionable. Specific challenges these schemes/system face are mainly the increasing longevity and changing demographics which will occur over time. The authors of the report look the old age crisis not from the perspective of pension providers, rather from the pension schemes participants' perspective. This 'increasing longevity and changing demographics' has made many unfunded pension liabilities covered by government questionable in many countries.
Several sources of unfunded pension liabilities are identified in the Robert Holzmann et al. (2004) report.
1) Guarantees of privately managed DB schemes.
These guarantees can take different forms. Based on the examples given by the authors:
US guarantees involves a premium payment to an institution to cover liabilities for those who cannot do it.
In UK and Japan, individuals who opted to ' contract-out' of the public scheme, a provided guarantee against inflation risk (those DB plans which are under inflation rate) in their employer-sponsored DB plans.
2) Minimum Pension guarantees of publicly mandated, privately managed DC Schemes.
Besides the minimum guarantee mentioned in the empirical review, Chile Pension Framework also involves in guarantee a minimum accumulated balance in the individual account(managed by the AFPs) to meet a pre-specified minimum pension. [ii]
3) Unfunded liabilities of publicly managed DB plans.
Those liabilities arise due to 'Social insurance' schemes that currently dominate pension provision around the world. They are found in more than 150 countries; cover vast majority of the labor force and the elderly. They are general known as non-contributory DB plans. Examples target workers in these schemes are usually military forces and civil servants
4) Unfunded pensions, publicly managed DC plans.
The idea behind that plans is to ensure that the government promise can be monitored (like a government bond, but this is considered as a special non-tradable bonds with a prescribed interest.
5) Other pension liabilities.
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
Other pension liabilities such as universal pension schemes or even means testing schemes are included in this subsection.
"The multipillar pension system is defended by three main theoretical arguments that are supported by limited empirical evidence." Yan Wang et al. (2001)
1) The multipillar pension system will facilitate economic efficiency and growth, through removing labor market distortions and by providing better incentives, increased savings, and better allocation of resources (James 1999).
2) " It enhances the financial sustainability of the pension system and thereby provides better long-term protection for the elderly. " Yan Wang et al. (2001)
3) It has a redistributive impact and could improve intergenerational equity . James (1999)
In Larrymore Willmore's report [iii] on "Universal pensions in low income countries", the 'Zero pillar' can take three forms:
Universal flat pension - it is the simplest and usually has the absolute coverage amongst old age people.
Means-tested flat pension- Common in developed countries and developing countries, which target the poor
Minimum pension guarantee for earnings-related pensions- Common in developing countries, which is linked to contributory schemes of the pillars II and/or III
Means Testing v/s Universal Flat Pension
In Amartya Sen's well known essay on "The Political Economy of Targeting" (1995, pp.12-13), the major social costs of means test are identified:
Disutility and Stigma
-"Means-testing is often regarded as humiliating and divisiveâ€¦.it can reduce incentives to save and work" Frank Field (1999). Timothy Besley (1990) added further that this social cost usually occurs when the means testing is considered as too stringent.
Informational Distortion and Incentive distortion
- It is "a system that rewards cheating and penalizes honesty" (Sen, 1995, p.12). That is, under the means test regime, people quickly learned that disclosure of information penalizes people who tell the truth, rather than those who hide or distort the information.
Administrative and invasive costs
-Most of the means test systems involve huge administrative costs which involve screening of those who are qualified and those who are not.
In addition to these social costs identified above, Larry Willmore (April 2003), a major complaint about means test system, according to a government minister, is that it gives power to bureaucrats and corruption sometimes accompanies it. However, in the same report, L.Willmore (April 2003), "When an applicant has right to a pension by simply submitting proof of age, the official government has little power as compared to the case where an official is asked to certify the applicant's income"
'On the other hand, universal flat benefits system is considered as advantageous. This system is considered as simple with low administrative costs. However, there is are doubt about its sustainability that many, if not all, countries will experience an increasing growth rate of old age people' ((L.Willmore (April 2003); Timothy Besley (1990)). However, Larry Willmore (2003) further added that so long as GDP per capita continues to grow, there is no cause for alarming the universal pension's sustainability.
"The importance of longevity risk and exposure to it has recently been recognized by the international accounting standards board, which has begun to tackle the problem of how to disclosure longevity risk in financial statements (see Fujisawa and Li, 2010)." Martin Boyer et al.(2011). The authors added that due to the undiversifiable nature of the longevity risk of a society, it is important to forecast the number of death with a certain degree of accuracy.
Lee-Carter model is one of the "leading statistical model of mortality [forecasting] in the demographic literature" (Deaton and Paxson, 2004). Initially, "Lee and Carter developed their approach specifically for U.S. mortality data, 1933-1987." Federico and Gary (2007). The authors further added that in the last 10 years, "Scholars have "rallied" (White, 2002) to this and closely related approaches, and policy analysts forecasting all-cause and cause-specific mortality in countries around the world"
However , one of the limitations of lee and carter model is " that guarantee that forecasts (or backcasts) from it will not remain consistent with observed U.S. mortality data and it will deviate in a way that will likely also be inconsistent with many demographers' priors beliefs about the patterns of future mortality." Federico and Gary (2007). Further more, there has been a study made in the 1993-1987 to forecast mortality for 50 years in the future and it has concluded that there is considerable level of uncertainty in forecasting that much.
The World Bank (2004) identifies that several factors that need to be taken into consideration concerning Mauritius.
Mauritians' probability of living longer has increased.
Life expectancy at 60 was on average 13 years old, now it has increased by 5 years more.
Some Mauritians already work beyond their 60th year.
Those working in the urban areas and working in the service sectors tend to work till an older age than those in the rural areas in the manual sector which requires much physical effort.
The economy is already changing into a service and manufacturing economy.
Some elderly and poor need a higher basic pension
"The concept of implicit pension debt (IPD) recognizes that workers and pensioners have claims on the current or future governments" Cheikh Kane and Robert Palacios(1996). In simpler financial terms, it is the present value of all the future pension liabilities that are to be incurred today, if it is not in the future itself.
According to Cheikh Kane and Robert Palacios (1996) , the existing empirical work does not use consistent methodology, and there are also no work that have compared different countries has been done. The reason why assessing IPD of making international comparisons are difficult is because there is a "deep-rooted conflict between reliability and comparability of projections for pension schemes in different countries." Martin Werding (2006)
Cheikh Kane and Robert Palacios(1996), further added that "the value of IPD are useful in considering the implications of ending a pay-as-you go scheme" but it is also an important tool for policymakers to compare the results of different reform proposals or scenarios to assess the impact of such a change in the pension system.
"IPD provides a tool with which to evaluate pension reform that does not currently exist. Reductions to the IPD due to marginal changes such as increasing the effective retirement age or altering the benefit indexation rules could be readily measured" Robert Holzmann et al. (2004)
2.2 Empirical Review
Singapore Pension System
The pension system in Singapore, Mukul (1999), consists of:
"A non-contributory pension scheme for the government employees"
According to the report, in between 1973 and 1987 (conversion exercises period), the pensionable employees were given the choice to shift to the CPF scheme. In addition to that, World Bank (1999) identified that this transition process from a PAYG to a funded pension system has led to an increase in the national saving rates in Singapore and Malaysia.
" A mandatory, publicly managed, DC"
It consists mainly of the CPF (Central Provident Fund) which is a mandatory retirement savings. The CPF, being a provident fund, is based on individual account. The most fascinating about the CPF is that it has a great mobility which remains with the employee in job transitions process but, it also has expanded its scope to achieve social, political and other objectives. The CPF has been able to provide home ownership, pre-retirement investments, life, home and health insurance and others like loans for tertiary education in Singapore. In simpler terms, the CPF acts as a scheme for retirement and as a boost in the welfare for the individual holder.
The success of the CPF is largely attributed to the advantages given by the government. Mukul identified that CPF acts as a tax deductions for retirement withdrawals; and over time, CPF has becoming more transparent and has offer substantial liberalization in the investment decisions.
"The provident fund for certain categories of Armed forces personnel called the Savings and Employees Scheme"
- This scheme is much more generous than the CPF scheme.
France Pension Framework
According to the website, http://www.understandfrance.org/Paris/Life4.html, it is undeniable that the reforming the pension system will have be forceful manner either today or in the next few years to come:
"In France, the general rule is that you must retire at age 67 and you can retire from age 62, as long as you have worked 41 (now) then 42 yearsâ€¦ However, in some professions, people can retire as early as 55 or even 50 and many early retirement public programs have been established. Women gain two years per child. After big strikes, it has been decided in 2003 that civil servants, who needed only 37,5 years work when private sector needed 40 would follow the general rule (but very progressively). In October 2010, in spite of huge strikes, the system was changed and the ages were modified from 60 to 62 (minimum age) and from 65 to 67 (normal age)."
France pension system is composed of:-
1) Basic Scheme
"The basic pensions of the general scheme are paid by the Pensions and Occupational Risks Fund (CARSAT), the National Old-Age Insurance Fund for Employees of Ile de France (in the case of the Paris region) and the General Social Security Fund (in the case of the Overseas Departments)."
-"Retraite par repartitionâ€¦ is based on the idea that the money collected among active people is not invested but immediately redistributed to retired people." This pension pillar is more preferred in France as compared to the case of US).
2) Compulsory Supplementary Schemes.
They are "supplementary pension schemes for employees and are administered by supplementary pension institutions and by the federations heading these institutions. For private-sector employees, supplementary pensions are administered by ARRCO (Association for Employees' Supplementary Schemes), covering all categories of employees (managerial and non-managerial), and AGIRC (General Association of Retirement Institutions for Executives) covering only managerial and executive staff."
The amount of contributions paid is on the basis of a reference salary/income which is then converted into points.
-"Retraite par capitalization" is similar to Americans which involves, for instance, pension funds and corporate plans. However in France, this pension pillar constitutes a small proportion of retirement income. "For the French it is just unthinkable that the pension you get could depend on the failure of your employer or past employer (nobody could believe the Enron story)."
-"Retraite Complémentaire people over a certain income, and is also based on "repartition"principle and therefore totally independent of the future of the companies you worked for."
U.S Pension Framework
The Four Pillars of U.S Retirement, Prudential (2008), focused of the main changes in the U.S Retirement pillars that have been observed. In the report, the American pension framework is a multi-pillar model, more specifically a four pillar model.
Social Security of U.S system is the zero pillar, as per World Bank (2008), and the social insurance program is not only for retired persons. The program is extended to "dependents of retired workers and surviving dependents of deceased workers". The program is now referred as the Old Age, Survivors and Disability Insurance (which has broadened to disabled persons).
In addition to the social security, there is the Supplemental Security Income (SSI) and the Medicare and the Medicaid available to retirees (Brady et al. (2012)).
Employment-based plans, the 'mandatory' pillar, are considered as an important source of income for U.S workers. With the introduction of the 401(k) plan, growth of DC has begun. There is evidence than there is a shift from DB benefits to DC, that is, the income generated in the retired age will depend on the performance of their investment. The DC plans in the U.S offer individuals more flexibility and control. (Examples: The individuals have the ability to move in between jobs without losing the benefits in the plan; investment choices, asset allocation and pay out options).
"Employer-sponsored defined benefit plans pay the Pension Benefit Guarantee Corporation (PBGC) a premium, which serves to insure some portion of the acquired rights of covered workers if funding is insufficient to cover liabilities at termination." Robert Holzmann et al. (2004)
Personal Savings involve Individual Retirement Accounts (IRAs), annuities and other personal savings such as Bank deposits, mutual funds, fixed income, and Equities. There are two types of IRA, the traditional IRA and the Roth IRA. The evidence which was found is that U.S savings rate is inferior to that of other developed countries. These personal savings are voluntarily done and constitute the voluntary pillar as defined in the World Bank report.
Eventually, there is this new concept which the World Bank has defined as the non-financial support. In the report of U.S, the fourth pillar is defined as the 'retirement choices'. The retirement choices intend to capture the lifestyle choices and the financial choices- when to start retirement; whether to work in retirement; where to live; how to allocate assets; how to convert assets to income; how to protect assets. In addition to that a prudential study made showed that only 20% of pre-retirees are "well informed" on the "how to" of the retirement choices.
Chile's Pension Reform of 1980 (known as the "APF System"
Chile's pension reform has been a great success and has been taken as model by many Latin American countries (Peru, in 1992; Colombia and Argentina, in 1993; Uruguay, in 1995; Mexico, Bolivia and El Salvador in 1996; Nicaragua and Dominican Republic in 2000 and 2001 respectively) and other countries like Hungary, Poland and Latvia (Rodrigo R. et al. (2001)).
The most interesting about the Chilean Pension Reform is that it has not only been able to reduce the government intervention in the Pension System drastically but also been able to attract people to go for the APF system. The transition process has been mandatory for those working after 1st January 1983 and voluntary for those before. The APF system in itself is a multi pillar.
The Social Security/provided under pillar one are the welfare pension program and the pension programmes of the Armed Forces (Rodrigo R. et al. (2001)). Under the welfare pension program, a minimum pension is granted to people over 65 years-old or disabled persons who have income lower than 50% of the minimum pension(the program is incompatible with receipts of other pension).
The two main function of the state is to provide some guarantees and supervise and regulate the whole system. The government gives guarantees for life annuities paid by insurance companies. In case of bankruptcy of the insurance companies, the government minimizes the losses of the pre-retirees or the retirees. The changes made in the pension system are implemented with the view to encourage the pension market to be more competitive with high returns and low administrative costs; reduce government deficit in the pension budget.
The author, Arenas et al. (1999), estimated that the Total Social Security debt would continue to decrease gradually from 3.6% to 3.1 % in 2010. The long term effect of replacing the old pension system to the new one is positive in almost all projections (see Bennett and Schmidt-Hebbel, 2001 or Favre et al., 2006), as well as in the World Bank estimates of the evolution of the implicit pension. "In absence of the
structural reform, the pension implicit debt in 2010 would have been 1.5 times the Chilean GDP (vs. 25 per cent after reform)" Ángel Melguizo et al. (2009).
From Rodrigo R. et al. (2001)'s report, 'empirical studies showed insufficient evidence to resolve the impact of the reform on saving'. However, figures shows strong growth in Chilean's national savings; positive impact on private voluntary savings (though not a very important one).
Empirical evidence about Mauritius.
Based on a scenario established by L. Willmore (2003), it has been found that the numbers of workers per retiree in the year 2000 was 7.5 and will drop to 2.5 workers in less than 40 years. Increasing its retirement age to 65, under ceteris paribus, the author evaluated that instead of 2.5 workers per retired person, there will be 3.9 by the year 2040.
'Basic Retirement Pension which has come to be regarded as an 'entitlement' by most Mauritians and has a strong poverty reduction effect. It was introduced to provide a minimum income guarantee for the elderly when most o f the Mauritian population was poor' World Bank (2004). Simulations undertaken in the report suggest that the BRP 'reduces the share of poor single elder adults by 35 percent, of elderly couples by 61 percent and of elderly living with non-elderly by 30-50 percent.
Though the importance of BRP is highlighted and that some high income earners do not rely on the universal pension, many authors and institutions like IMF and World Bank questioned about the sustainability or affordability of a universal pension. The report that World Bank (2004) issued talk about three alternatives to improve the sustainability of the actual system (under the universal regime). The alternatives are: raising pensionable age, introducing means testing, and reducing the benefit level.
Introducing means testing, based on past experiences has brought several negative implications and reducing the benefit level has been discussed in L.Willmore (2006) that due to political constraints (refer to the History of BRP), reducing benefit level will be less likely to be done specially when the World Bank report (2004) said that " the share of its over-60 population is expected to more than triple in the next 50 years".
Based on IMF staff estimations on distribution Benefits table in 2006 (shown in percent by quintile), it is found that at that time, 38.7% of BRP benefits go to the richest 20% of the country.
Projections made by the World Bank (2004)
The report has undertaken an implicit pension debt (IPD) by discounting the future pension obligations by a rate of 8 percent. The results under current practice was an IPD 221 and an IPD of 111 with the introduction of a madatory retirement at 65.
The world Bank reported that it is highly advisable to reduce the basic pension liabilities (in which BRP takes a large share) to be sustainable in the future.
3.1 Brief Overview about Mauritius
Mauritius is one of the most diverse pension system around the world. In fact, it has all the pillars which are set up under the World Bank starting with the financial aspects to the non-financial aspects. However, the most distinguishing feature of the country is its ability to provide a non-contributory universal pension scheme.
The non-financial aspects can be the advantages and facilities offered by the formal and informal system which are given to the pensioners or future- pensioners in terms of services. The examples of non-financial aspects facilities given by the CPF is to provide home ownership, pre-retirement investments, life, home and health insurance and others like loans for tertiary education.
In this section, the Mauritian pension system has been divided into the World Bank Pension System Conceptual Framework. That is, the Mauritian pension system will be segmented into non-contributory, contributory, and voluntary schemes.
3.1.1 Actual Pension System of Mauritius
Non-contributory schemes available are presently Basic Pensions and the Public Service pension (known as Civil Service Pension Scheme) and the Statutory Bodies Pension Fund. The contributory schemes involve mainly the National Pension Fund (NPF), National Saving Fund (NSF). The voluntary schemes involve pension schemes set up by insurers or employers (Personal pension schemes), the Sugar Industry Pension Fund (which is managed by a Board, under Section 19 of Sugar Industry Pension Fund Act) and Individual savings.
Concerning the last pillar which is basically a non financial pillar, in Mauritius, there is the Health and Housing policy which are available to pensioners and members of a contributory fund.
3.2 Components of Pension System in Mauritius
3.2.1 Basic Pensions
Basic Pensions are generally financed from general taxes and are accounted in the government's statement of Expenditure of the Consolidated Fund [iv] . Examples of basic pensions are the Basic Retirement, Basic Widows, and Basic Invalid pensions.
3.2.2 National Pension Fund
The NPF is a compulsory defined benefit scheme, which has been created in 1978 and ruled under the National Pension Act 1976. The need to maximize return, need for security, need for liquidity, and need for national development are the four investment objectives that the Investment Committee is trying to balance.
The standard contribution rate is set up at 9% of earnings, employers- 6%, employees-3%. However, most employees in the sugar industry have their contribution rate valued at 13.5%, employer-10.5% and employee-3%. It is important to highlight that public servants and every low income earners are excluded from the mandatory contribution, which means that they do not receive contributory and injury pensions granted to members of NPF only. The pay-out benefits will depend on the points which have been accumulated through-out the years until retirement.
3.2.3 National Saving Fund
NSF, on the other hand is a defined contribution scheme (contributed by the employer) whereby at retirement, a lump sum is paid to the retired member of NSF. Previously known as the Employee Welfare Fund, it is set up under the National Saving Fund Act 1995. The contribution rate is actually amounted to 2.5% of the employee's income which is solely contributed by the employer. As compared to NPF, civil servants are included in this scheme.
One of the main criticisms related to NPF and NSF is that they investment made is not enough diversified. For example, for NPF/NSF 2011, investment in local government bonds has amounted to 63.2% and 80.7% out of the total portfolio which obviously is beyond reasonable [v] .
3.2.4 Statutory Bodies Pension Fund and Civil Service Pension Scheme
The pension schemes under Statutory Bodies Pension fund Act 1978 are required to be administered by SICOM (State Insurance Corporation of Mauritius). This scheme is on the transition process towards a contributory scheme. Based on Statutory Bodies Pension Fund Act, officers [vi] who are appointed on or after 1 July 2008 have to contribute to the scheme.
Civil Service Pension Scheme has been revealed to be "overly generous" by the World Bank. "The replacement rate of a private sector worker will have a replacement rate of 53, a civil servant will receive a replacement rate of 87( 20 from BRP)" World Bank (June 30, 2004). The expenditure on CSPS amounted at Rs 710 m in 1998, increased to Rs 788 m in 1999, Rs 889 m in 2000. In 2001, the expenditure increased by almost 37%; 2006/2007's CSPS expenditure grew by around 12 % amounted to around Rs 354 m; 2010/2011's costs increased by Rs 113 m.
3.2.5 Pension Schemes, set up by insurers, any other authorized companies or employers
They need the approval and supervision of one of these institutions: the Registrar of Association under the Employees Superannuation Fund Act 1954; the Mauritius Revenue Authority under Income Tax Regulations 1996; and the Financial Services Commission under the Financial Services Act and the Trusts Act. The private pension sector has actually of around 1500 schemes under MRA, about 50 under Registrar of Association and around 15 under the Trusts Act.
However, it is important to note that a Private Pension Act is currently under negotiation. According to Aon Hewitt, one of the important advisory firms in pension system in Mauritius, there will be several benefits to the new enactment to come. Amongst others, the regulatory objectives will be maintained in a fair, safe, and efficient way; promote confidence; and fair treatment to beneficiaries.
3.2.6 Sugar Industry Pension Fund
Accordingly to the Sugar Industry Pension Fund Act, which is basically a defined contributory scheme (contribution rate out of the employee salary), there are several conditions to be able to becomes members of this scheme. Amongst others, the conditions are:
-The need that the employer is being directly related with the process of sugar industry as per the act.
-The employee should not be listed in the enactment section 4 (3)
3.3 Challenges ahead in the MPS
From a seminar on 22nd August 2012, "Implications of the new private pension scheme legislation", undertaken by the Swan Group, it has been indentified 4 important challenges that the pension industry in Mauritius is actually facing:
1) Increasing Life Expectancy. In fact, life expectancy is increasing all over the world, not only in Mauritius. However, the core problems is the increasing gap between the retirement age and life expectancy of the individual, where-by the inability to forecast, with some degree of accuracy, the life expectancy of a specific individual
2) Lack of interest from younger people to invest for the future. That is they prefer to spend more for the current benefits.
3) There is a belief that the employer will provide the pension (which may not be the case)
4) Lack of willingness to understand the pension system; how it works and so on.
3.4 Basic Retirement Pension (BRP)
Since the research methodology that will be based on accessing BRP, it will be worthwhile to how an overview the BRP in Mauritius.
3.4.1 History of BRP
In 1950-1958, policymakers were looking to reducing their fiscal costs. They have introduced an individual income test excluding 20-25%, relative to the universal system. The means test at that time was going to be harsher whereby informal sector (like potential support from daughters and sons) were taken into account. Honest citizens, at that time, were shocked to see that they had their pensions reduced. They quickly learned to disclose information to avoid the cut-off on their pension. In 1958, the testing was abolished and the system returned back to universality.
In 1965-1976, for the second time, a mild income test was introduced. The process is about filing and paying tax disqualifies people to obtain their pension support from the government. The system was not as intrusive and there were not so much corruption as the previous one. However, the problem was that the incentives to disclose or distorting information had not been resolved.
For the third time, on August 2004, an income test on BRP was imposed. In this one, pensioners (< 90 Yrs old) with annual income greater than Rs 208,000 had their pensions reduced by 50%*1/12 of the excess amount which was above Rs 208,000. However, the party at that time lost the national elections of July 2005, and the new government eliminated the targeted approach again back to the universal system.
In 2008, the government has introduced a general gradual increase in retirement to 65 years old . However, for BRP the eligible retirement age has been affixed to 60 years.
The general eligibility requirements to have access to the BRP are:
Every Mauritian Citizen aged 60 or above;
The person should have resided in Mauritius for an aggregate of 12 years ( on or after its 18 years old)
The residence qualification does not apply to Mauritian citizen aged over 70 or over.
Non-citizens must have resided in Mauritius for at least 15 years on average(on or after its 40 years old)
Those who are eligible to BRP as at 2013, the amount as at 2012 has been adjusted to compensate for the increase in cost of living. According to the budget 2013, "As from January 2013, the monthly BRP will go up to 3, 494 rupees for pensioners aged 60 to 89 years, to 10,404 rupees for those aged 90 to 99 years and to 11,807 rupees for centenarians."
This represents on average an increase of 4.3%.
3.4.3 Payable Amount
Once eligible, the amount receivable would be as per the budget indicates.
For the budget 2013, the amount payable to those eligible is indicated below