Financier: Mauritius Saves Rs3 Billion from Pension Reform’s 1st Year

Mauritius is undertaking a major pension reform aimed at ensuring long-term economic stability. Despite political debates and challenges, experts emphasize the importance of this change to reduce dependency on outdated systems and strengthen the country’s finances. Here’s what you need to know about why this reform is essential for Mauritius’s future, the following are insights from an interview by l’Express with Bernard Yen, Actuary.

What is the pension reform to 65 years? What does it involve practically?

This reform is the final step toward raising the official retirement age to 65. Between 2008 and 2018, steps were taken in this direction. Before 2008, people could retire once they reached 60.

After 2018, following a transition period, that changed. Now, employers cannot force workers to retire at 60, as the legal retirement age is set at 65 since 2018.

Why is the government pushing the Basic Retirement Pension (BRP) age from 60 to 65? What makes this reform urgent now?

Primarily, it’s logical: if people can work until 65, they should start receiving their pension at that age.

For example, if an employer offers a pension fund, the person should retire and start collecting it at 65, whether from the employer or the National Pensions Fund (NPF).

However, the old system paid pensions starting at 60, which doesn’t match this. It’s inconsistent—healthy workers could work past 60 while still receiving the state pension, which was paid out at 60. This inconsistency needed fixing.

The change is being implemented gradually, from 2008 to 2018, and will continue until 2035, when everyone will reach age 65 for pension eligibility.

Why is the delay gradual? Is it to ease the impact on individuals?

Yes. A sudden shift from age 60 to 65 would be unfair, especially for those close to retirement. For example, if someone turns 60 next year, they would normally start collecting their pension then.

Under the new plan, they’d have to wait another year, so they’d start at 61. Someone born in 1970 would have to wait until 2035 to reach 65.

The transition is designed so that those under 55 will wait about five years, while older workers will wait less—around three or four years—depending on their age.

This phased approach avoids forcing everyone to wait the full five years immediately.

You mentioned that the plan to gradually raise the retirement age from 2008 to 2018 was planned but not carried out as scheduled.

Are these years of delay making the situation worse?

Yes, definitely. If the change had been made in 2018, the country would have saved a lot of money.

Today, around 260,000 people over 60 are receiving the pension, compared to only about 180,000 people over 65 who would have been eligible if the reform had been implemented earlier.

The additional 80,000 people aged 60 to 65 are a burden on the government. Calculations showed that delaying the reform has cost about a third of what the country currently spends on pensions.

Currently, the government spends roughly 55 billion rupees annually on old-age pensions. A third of that—about 18 billion rupees—could have been saved if the reform had been done earlier.

Projections suggested that if the reform is applied now, in 10 years, the country could save between 15 and 17 billion rupees each year.

You often mention the “sustainability” of the pension system. What does that mean, and why was the current system in danger?

Today, the government spends about 55 billion rupees annually on old-age pensions.

Including disability and widow pensions, the total social security budget exceeds one-third of the national budget—over 90 billion rupees.

That’s shocking when compared to other sectors: around 20 billion rupees go to education and health, and about 10 billion to other areas.

The pension expenses are too large. If the retirement age had been set at 65 earlier, the government could have saved 20 billion rupees per year.

That money could have been used to pay down the national debt, which is now at 650 billion rupees.

The country pays about 20 billion rupees in interest each year. As the population ages and fewer young people are available to fund pensions, the system will become unsustainable.

Taxes would have to be doubled—imagine a VAT of 30%, or income taxes of 50-60%. Can we live like that? That’s why urgent action is needed now.

For those unfamiliar, what is the “pay-as-you-go” system on which the Basic Retirement Pension (BRP) is based? Why is it no longer sufficient?

“Pay-as-you-go” means there are no invested funds. In private pension schemes, people contribute during their working years, and those contributions are invested to pay their pensions later.

In the “pay-as-you-go” system, current workers’ contributions are used immediately to pay current retirees.

There’s no money saved for future pensions. If the population remained stable, this system could work, as it does in some developed countries.

But life expectancy has increased, so people live longer, and the number of retirees rises.

At the same time, birth rates are falling, leading to fewer young workers to fund pensions. Some young people oppose the reform because it affects their relatives—mothers, aunts, etc.

But long-term planning is essential. Today, three workers support each retiree. In ten years, that ratio will drop to 2.5 to 1. and in forty years, it might be just 1 to 1.

This would mean taxes would have to triple. Without dedicated funds, younger generations will have to pay three times more. It’s simple mathematics.

Many Mauritians, especially those close to retirement, feel betrayed. What would you say to them?

I understand their feelings, and it’s unfortunate. I would tell them: In 2014, the pension for elderly people was Rs 3,600. Today, it’s Rs 15,000.

If it had increased with inflation, it would be around Rs 5,500 now. This shows how much the system needs reform to be sustainable and fair for future generations.

If the pension were currently set at Rs 5,500—considered reasonable and affordable—would there be as much discontent?

Probably not. Between 2000 and 2005, there was an attempt to reform the pension system by targeting higher earners—those earning more than Rs 20,000—who would not receive a pension.

That plan was poorly received. The current government chose to delay raising the retirement age instead of targeting specific groups. Originally, the pension was meant to be a safety net.

Today, with a pension of Rs 15,000, it’s close to the minimum wage. If retirement benefits were around Rs 8,000, as the World Bank suggested (about 20% of the average salary), people would accept waiting five more years.

But at Rs 15,000, the pension is too high for the government to sustain easily. It’s like giving a child a tablet and then taking it away—an unfair shock.

The government should have increased pensions gradually, not all at once. Right now, national debt stands at Rs 650 billion, and the government has to borrow each year.

The worse the country’s credit rating, the higher the interest payments. That’s why Moody’s rating is so important.

Some worry that the most vulnerable will be unfairly affected. Will there be measures to help those who relied on retiring at 60?

That’s why the transition period is set for ten years. The government has also announced two committees to review special cases. I hope they do a good job and that those relying on early pensions will receive support.

What do you think about the new NPF 2.0?

It’s very important, and I’m glad it’s being discussed. I work with the group La Sentinelle, and I know there’s a pension fund for employees.

I advise employers to create such funds. If the government contributes, that’s an added benefit. But employees should have their own pension plans through their employers.

This is already happening in the public sector. For the private sector, there’s the PRGF. Those without a pension fund need to contribute to one.

Changing the old-age pension system doesn’t mean everything collapses. There are other systems that can be improved.

I hope the committee of experts will do a good job. One of the oldest funds, the Sugar Industry Pension Fund, is a good example.

The risk now is that the government could become unpopular, and some political parties might promise to bring back the pension at 60 to win votes.

Is this reform financially viable?

It’s unfortunate that this has become a political issue. I’ve been back in Mauritius for 25 years and have always advocated for a reform based on consultation.

It’s essential. Pension decisions should not be driven by politics. Otherwise, every five years, there’s a new change—sometimes raising the retirement age to 65, then dropping it to 60, then raising it again to 62.

That’s not serious planning. A pension fund is a long-term system, and stability is crucial.

I regret that the National Pension Fund (NPF) was abolished in 2020.

It was not perfect, but it was useful. I never had the chance to work on the national fund. It could have been diversified to reduce the country’s dependence on the Basic Retirement Pension (BRP), the NPF, or employer contributions.

In short, why is this reform ultimately good for the country, despite its difficulties?

Because it’s not just good—it’s necessary. In the first year, the government will save about Rs 3 billion. After that, savings will grow to Rs 9 billion, then Rs 15 billion annually.

But we must be careful about the negative effects of increasing taxes. We shouldn’t scare away taxpayers. Mauritius needs to maintain reasonable tax rates, not jump to 50-60%, like some countries.

In the past, our tax rate was around 15%, which helped us. If we don’t implement this reform, we’ll have to raise taxes and risk losing our competitiveness.

Our economy relies heavily on tourism, finance, and a little on real estate. Without these sectors, we might even struggle to import basic goods like rice and flour.

We must do this for a healthier economy.

Source: l’Express