How sustainable is SPF? |27 February 2017

The Seychelles Pension Fund (SPF) has been inexistence from January 1, 2006 as a fully fledged pension fund and the pension provided is covered by a mandatory public scheme.

The pension plan is a defined benefit (DB) where the members pay-as-you-go which provides beneficiaries (contributors) with an adequate income stream during retirement.

The contribution rate is currently at 4% which is among the lowest in the world, of which 2% is contributed by employees and 2% is contributed by employer.

Under the mandatory contribution it does not matter what you have contributed as pension is paid based on a formula where the contribution is lower than the actual benefit.

Coverage is provided to all Seychellois workers in formal full-time employment, self-employed, part-time and casual workers with 20 years aggregate contribution or 10 years of continuous contribution.

The compulsory retirement age is at 63 years while it is also optional to retire at 60 years.

2016 Life expectancy for female is 79.9 while for male it is 69.9 so for both sexes it is 75 (74.9) years.

It will increase to 80 years in 2050 as per population projections.

Population in age group 65 years expects to increase from 7.4% to 18.1% by 2040 and this will pose major financial and economic burdens unless this is addressed by reviewing pension contribution and retirement age.

The sources of income for SPF are through pension contribution and investment income.

For 2016 a total of R221.7 million of contribution was collected and R148m from investment income and the pension benefits paid to 4287 beneficiaries is R157.5m.

In 2015, 3670 beneficiaries received a total of R191.9m which is a 54% increase.

Retirement ages between 63 to 65 years of countries with similar life expectancy include some smaller countries such as Hong Kong (China), Botswana, Cape Verde, Mauritius, Cyprus, Isle of Man, Jersey, Singapore, St Lucia, Bahamas, Maldives, Cuba, Barbados and Montserrat.

Average of statutory retirement age in the organisation for Economic Cooperation and Development (OECD) is 65.

Tendency all over the world is to increase retirement age in view of ageing population and long-term sustainability of pension plans.

The age the typical worker expects to retire is no longer 63 or 65.  Studies carried out have shown that the average expected retirement age has been gradually increasing over the past seventeen years from age 60 in 1995 to 65 in 2016.

The actuarial projection to sustain the fund up to 2035 is as proposed in the following table.

Pension expert and retiree Willy Confait says the current position is strong, but contributions is not enough in the long term as members are living longer which put more strains on the Fund so there is a need to gradually increase contributions and the retirement age should be reviewed.

“Increase pension contribution based on the actuarial review and retirement age are very important to the long-term sustainability of the SPF to ensure that SPF addresses the increasing life expectancy and ensure that the SPF is both affordable and adequate,” he said.

He said certain measures need to be taken immediately to sustain the SPF for our benefit and that of our children such as the increase of pension contribution on a gradual basis starting with 1% as recommended in the 2017 budget to be followed by another 1% in 2018 and 2019, review the current optional retirement age as early as possible and extension of compulsory retirement age.

“If no action is taken now or soon the issue of sustainability will be aggravated and in the long term there will not be sufficient funds to pay pensions which will lead to loss of confidence from the beneficiaries and difficult times for the pension system. In the case of delay or lack of political will by policy makers or politicians more contribution will be required thus sacrifices and retirement age at 65 or higher will have to be considered,” he said.