The responsibility of government is to ensure that the pension right of employees in both the private and public sector is safeguarded through fair, adequate and non discriminatory pension schemes
By Mrinal Roy
The appellation Contribution Sociale Généralisée (CSG) is verbose and a bit of a mouthful. It has become a major bone of contention. The private sector is up in arms against the CSG. Business Mauritius, which coordinates the stance and actions of the private sector has distributed a pamphlet to argue its case, is contesting the government decision in the Supreme Court and has roped in the opposition parties to its cause. Workers’ trade unions have joined the fray. This tug of war distracts focus away from fundamental issues relating to pension schemes in the country which need to be urgently and comprehensively addressed and remedied.
Photo – telegraph.co.uk
Beyond the hype and the hullabaloo, the focus of the debate should be the tenor of pension schemes, the quantum of pension obtained by the employees of the private sector on retirement and the transparency and accountability of the manner pension funds are managed in the country. The pamphlet produced by Business Mauritius indicates that the private sector employee presently obtains the National Pension Fund (NPF) pension to which is added the Basic Retirement Pension of Rs 9,000 payable to all citizens after the age of 60 years.
As contributions to the NPF were based on a salary cap which was progressively increased to the present ceiling of Rs 19,900, the NPF pension amounts up to some Rs 5,700 which is basically a pittance. Had the basic pension not been increased from Rs 3,623 in 2014, the retired private sector employee would basically be receiving a paltry pension.
Effete and laboured
Business Mauritius argues in the pamphlet that the employee of the private sector will be worse off as a result of the replacement of the NPF by the Contribution Sociale Généralisée as the private sector employee will only obtain Rs 4,500 as from 2024 on reaching the age of 65 from the CSG over and above the Basic Retirement Pension of Rs 9,000. This will increase the Basic Retirement Pension to the promised Rs 13,500 by 2024. Does the private sector not have its own pension schemes to top up and indiscriminately assure an adequate pension to all its employees?
The other arguments advanced in the pamphlet are effete and patently laboured. They beg a host of germane questions
Why compare the contribution of a messenger earning Rs 10,000 per month to the SCG with that of a Minister when the country knows that Ministers do not contribute to their handsome pensions? The political class have voted an extremely generous employment package for themselves which includes the payment of a full pension after serving only two terms of office, without having to make any pension contribution. It is a decried exception to the rule of contributory pensions.
However, as regards the SCG, the Minister of Finance has confirmed that all MPs and Ministers will pay their SCG contribution as from September 2020 and that the public sector will also contribute to the SCG. 89% or a large majority of all employees earning less than Rs 39,800 per month will thus pay less SCG contribution than under the NPF.
In short, is the private sector basically contesting and locking horns for the remaining 11%?
It is also preposterous to suggest that a doctor operating a successful private practice with monthly revenues of Rs 200,000 would dare pay his CSG contribution on the basis of an income of Rs 10,000 under the vigilant watch of the Director General of the MRA. Too many professional practitioners having a successful private practice have been nabbed and penalized by the MRA for understating their revenue. No cause can be canvassed on the basis of tenuous and contrived arguments.
Why also trump up the flawed argument of comparing the pension of private sector employees with the pension obtained by employees of the public sector as the pension of these two categories of employees are determined by their and their employers’ pension contributions and the terms of their respective pension schemes. Civil servants obtain on retirement a pension equal to two-thirds of their last salary or a lump sum and a reduced pension equal to half their salary. Does the private sector not have its own in-house pension schemes to top up the paltry NPF pension so as to ensure that all its employees benefit from an adequate pension on retirement comparable to that prevailing in the public sector? The responsibility of government is to ensure that the pension right of employees in both the private and public sector is safeguarded through fair, adequate and non-discriminatory pension schemes.
Test of transparency and accountability
Pensions are a key and essential element of an employment package. Those familiar with the private sector know that it has its own in-house pension schemes as well as pension schemes subscribed with private insurance companies to top up and guarantee an adequate pension on retirement to employees covered by such pension schemes. However, quite a few things are amiss in the pension system prevailing in the country which have to be urgently set right.
For example, there is patent opacity in the manner the pension funds in the country are managed. They cannot be administered as a closed shop where representatives of employers call the shots, as those entrusted with the important responsibility of judiciously maximising revenue from the pension fund for the benefit of their members are trustees of colossal pension funds.
The management of pension funds must therefore meet the test of transparency and accountability. This means that pension funds must necessarily be managed by independent professionals specialized in pension fund management in accordance with best practice norms prevailing in the world.
This is particular important in a Covid-19 afflicted world where stock values and revenues on investment have been impaired. We should recall that pension funds and the pensions of employees and pensioners were severely eroded during the 2008 financial crisis. Groping blindly in unchartered waters is not an option if the management of pension funds are to be judiciously steered through the present Covid-19 related economic crisis. This is not a job for the dilettante. It is therefore high time to professionalize the sound management of pension funds in the country. The pension pot and the pensions of employees are determined by pension contributions of employees and employers and the sound and expert management of the pension fund.
The pension scheme is an important and cardinal component of an employment package across the world. In the UK, private sector companies very often offer pension schemes with more generous contributions by the employer significantly above the norms prevailing generally in order to attract and invest in talented and high quality cadres. The employee has the option to choose from different pension schemes and can track the performance of the chosen pension fund as well as his projected pension live.
The management of the pension fund is entrusted to independent trustees who use the expertise of professional pension fund managers to maximize pension value. Representatives of employees are also members of the board of trustees of the pension fund. This is a far cry from the manner pension funds are managed in Mauritius and the prevailing norms of transparency and accountability governing the administration of pension funds in the country.
Pensioner friendly Juggernaut
For example, the Sugar Industry Pension Fund (SIPF) which is one of the first pension funds established in the country is an impersonal juggernaut which has accumulated and owns prime assets such as Rogers House and Cerne House as well as various other properties. The core object of the Fund must be to ensure that there are no conflicts of interests and that revenues from the diverse assets of the Fund are systematically maximized for the benefit of pensioners.
As a matter of principle, it is essential that each generation of pensioners draw the full benefit of a professional and judicious management of the portfolio of diverse assets of the Sugar Industry Pension Fund during their lifetime. It therefore needs to be independently managed by pension fund management professionals with apt employee representatives on the board of the Fund having their say in the decision-making process.
The SIPF Act is a patent snapshot of the mindset of a bygone era. It is an inchoate jumble of clauses which clouds the thrust and core elements which are relevant to the members of the Fund. The Act must therefore be urgently streamlined by cutting through the dense maze to bring clarity and above all render it more intelligible and user friendly to the large number of sugar industry pensioners and members of the Fund.
International best practice norms
The debate over the CSG must therefore urgently trigger a long overdue overhaul of the operating framework of pension funds in the country to ensure that their tenor and management are benchmarked on the norms of best practice prevailing in the world. The CSG pension fund has to be brought under the ambit of the operating framework to ensure strict governance, transparency and accountability.
The cardinal rule must be that all pension funds must necessarily be administered by independent trustees assisted by the professional expertise of seasoned pension fund managers instead of a caucus of employers’ representatives driven by parochial interests. The interests of pensioners must therefore remain paramount and prevail at all times.