Beyond the Outcry: The Unavoidable Truth of Pension Reform

Opinion

By JMK

I watched Mr Pravind Jugnauth’s press conference of June 11 with mixed amusement. At one point, he stated, as reported by L’Express of June 12, “Mo finn toultan azirk couma enn Premie minis responsab. Mo pa pou met sapei-la dan enn precipis” (I have consistently acted as a responsible Prime Minister. I won’t let this country fall into an abyss.) Really, Mr. ex-PM?

Isn’t it because of his utter mismanagement of the economy in the past five years that we are “dan enn precipis” (in a precipice) today? The major part of his monologue was centred on the pension reform advanced in the 2025-2026 Budget. Riding the wave of popular discontent, he attacked the government’s proposal to align the eligibility age to receive the basic retirement pension with the retirement age, that is, 65. But when the retirement age was extended to 65 in 2018, shouldn’t the eligibility age for the pension have been increased to 65 too? Who was the PM then? Why didn’t he do it? Is it because he knew the move would be politically suicidal?

It’s easy to criticize, but I wished Mr Jugnauth could put some figures to back his argument – because, without them, they are empty and devoid of sense. Pension reform has always been a hard nut to crack. I can remember a World Bank report of 2004, that is over two decades ago, which underscored the unsustainability of the universal pension system and called for its modernization. The report observed:

“In an unchanged system, the demographic transition will be very costly… The projected high fiscal outlays [associated with payment of the BRP] entail significant risks. They could (i) compromise the fiscal position and economic stability of the country if financed through a budget deficit; (ii) crowd out much needed investments in social and productive infrastructure if expenditure envelopes remain unchanged; or (iii) jeopardize competitiveness of the economy through a strong increase in taxes. All such risks need to be avoided.”

The World Bank went on to make several recommendations to save the welfare state. Regarding the BRP, three options were presented: “raising pensionable age, introducing means testing, and reducing the benefit level”. Assessing these options critically, the report concluded that the first was most feasible and efficient. It was also consistent with “higher life expectancy and… the evolving employment patterns” characteristic of the modern Mauritian society.

More recently, a report by the IMF went in the same direction, offering three options to reform the BRP, namely “reducing generosity, tightening eligibility, and increasing incentives to remain in the labour market.” In Mauritius, where the BRP is regarded by many as a droit acquis – an entitlement – the report advocated for a tightening of eligibility for the BRP by raising the retirement age or through targeting. The MSM-MMM government attempted targeting in 2004, leading to a national outcry and a crushing electoral defeat in the 2005 elections. Since then, ‘targeting’ has become a taboo word.

The current government came to power on the back of a 60-0, synonymous of a carte blanche given by the people to translate its wishes into actions. Some people claim that the proposal to raise the pension-eligibility age did not appear in the Alliance du Changement’s electoral manifesto and, so, is unfair. Others are questioning the constitutionality of the measure and are threatening to take the matter to court.

The proposed pension reform has stirred people’s emotions and has managed to singularly drown the rest of the Budget. Nobody is talking about the other bold reforms proposed in the Budget (such as the new income tax system with its ‘fair share contribution’, the dismantling of several parastatals or the revamping of the smart city scheme) nor many other measures that have also frustrated large segments of the population (for example, the indiscriminate increase in excise duties on motor vehicles or the hike in registration fees).

Admittedly, the Budget has paid lip service to the notion of ‘economic renewal’, one of the three pillars on which it rests (the others being a new social order, and fiscal consolidation). The sectoral measures look shallow; passing mention is made of food security; and SMEs have been largely forgotten. AI, research and innovation are cross-cutting recurring themes throughout the Budget, but the litmus test lies in their actual implementation.

All things considered, aligning the pension eligibility age with the retirement age is the right thing to do in a context where the BRP is under pressure of an ageing population. In 2000, 9% of the population was aged 60 or above. This ratio increased to 19% in 2021 and is projected to exceed 36% by 2060. The 2025-26 Budget has provided for a sum of Rs 81.45 billion to be spent on social benefits. This represents 34.6% of recurrent expenditure, meaning one out of every Rs 3 is spent on pensions. In a pay-as-you-go system, it is the taxes paid by the working population that help pay the pension to the elderly. As the population ages further, there will be fewer people working to pay the pension of an increasing number of claimants. The universal free pension will thus come under heavy pressure in the future. One – rather extreme – way to see it is in terms of a choice between accepting to receive the BRP at 65, or to forever kiss goodbye to free pensions!

But why is the government adamant on such an unpopular measure? Even if the Budget speech does not explicitly say it, the government is very concerned about the Moody’s credit rating, which currently tinkers on the brink of ‘non-investment grade’. In April this year, Moody’s maintained the credit rating at Baa3 but downgraded the outlook from ‘stable’ to ‘negative’ on the back of the ‘State of the Economy’ report, which revealed cases of data manipulation and, ultimately, the under-reporting of the public debt. The debt-GDP ratio is projected at 90% at the end of this financial year, compared to estimates of 76% by the previous regime. Moody’s was considerate of the new government’s will to deal with the debt overhang and, as such, did not impose a heavy penalty on the country.

Imagine Mauritius was downgraded by a notch. We would fall into ‘junk status’. Foreign investors would be scared away; the cost of borrowing on international markets would soar, if the country manages to secure any loans, that is; and the country’s reputation as an international financial centre would get a major blow. The economic fallout of this scenario would be a prolonged recession, unemployment (especially among youths in the global business sector) and acute foreign exchange shortage. This is the doomsday scenario that the government is trying to avoid by reforming the pension system to curb government spending, thus reducing the budget deficit, the borrowing requirement and, ultimately, the debt level.

In its report, Moody’s exhorts the government to implement a fiscal consolidation plan over the next 12-18 months, which it says, it will be keenly monitoring. The proposed pension reform, alongside measures to cut spending across many budget lines and mobilize additional revenues, is thus a strong signal to Moody’s that this government is serious about tackling the debt issue.

Backpedalling now will have consequences. Domestically, it will be perceived as weak leadership and exploited by the Opposition as such. At the international level, it will suggest that the government is incapable of undertaking tough reforms, giving reason to Moody’s to downgrade our credit rating next year. It would be better if the government started a dialogue with affected stakeholders to explain the urgency of the reform and find a consensus on the issue. The proposed reform would be more acceptable if it were accompanied by targeting of the BRP and a review of the eligibility criteria for MPs to receive pensions. The government should show that the pension reform impacts everybody, not just common people who have waited long to receive what they believe is their due.

Mauritius Times ePaper Friday 13 June 2025