Basic Retirement Pension and Free healthcare: Should the rich benefit from welfare state?

The Minister of Finance, Pravind Jugnauth, has last week called for a national debate on the welfare state. Mauritius is one of the few countries which provide free healthcare, education and a basic retirement pension (BRP) to all its citizens. However, the point that Minister Jugnauth wants to drive home is that the Rs 5,000 BRP is paid to all persons aged above 60 regardless of their other sources of income.

The debate has been raging since the Finance Minister has called a debate on whether all retired persons should be entitled to the basic retirement pension regardless of their other sources of income. He has a valid point. Does it make sense for someone earning Rs 100,000 per month as pension to benefit from the Rs 5,000 pension?

In triggering a debate on this issue, Pravind Jugnauth is treading on slippery grounds. He fell short of using the word “targeting” while voicing his thoughts. In 2005, the outgoing MSM-MMM government was ousted for, among other reasons, the targeting it wanted to introduce targeting of welfare state benefits. Institutions such as the International Monetary Fund and the World Bank have often called for a better use of social outlays for a more judicial use of public funds.

From an economic perspective, targeting makes sense as the savings made could be put to better use such as actions against poverty. Moreover, Mauritius faces an aeging population crisis which will put more pressure on public finances. By 2052, nearly a third of the country’s population (30.2%) will comprise of people aged 60 and above. With fertility rates below replacement rates, the problem is further compounded.

These changes in demographics will not only affect provision of pensions, but also put at strain public healthcare services, which is free to the end-user, and also, the capital expenditure of future governments, as infrastructures will have to be upgraded to cater for a larger number of old people. Think about access to adapted public transportation, pathways, and recreational facilities. Also, the healthcare bill will surely rise as there would be a higher need to spend on service provision, purchase of medication and increased hospital visits.

Need for solutions

The reflection has to be lanched as the country stands at crossroads. Former public service officer, Kris Poonoosamy, argues that despite the debates no solution has been reached on this question to date. “Nothing has changed because of politics. However, if no decision is reached, the government will suffer economically. Some people do not need the BRP. In such cases, the government can without any controversy go for targeting.”

According to him, if the State does not introduce targeting, it will not be able to spent on other priorities. “It can save money for other activities to develop the country further and create more jobs.”

The implementation of targeting needs some research, he adds. Discussions should be held between stakeholders. “Research must be undertaken on household expenditure and salary scales. The government needs to be rational in its decision. Any figures put forward will have to be justified.”

[[{"type":"media","view_mode":"media_large","fid":"14243","attributes":{"class":"media-image size-full wp-image-23674 alignleft","typeof":"foaf:Image","style":"","width":"250","height":"300","alt":"Rashid Imrith"}}]]Rashid Imrith: “Targeting is not a good solution”

The president of the Federation of Public Sector Trade Unions, Rashid Imrith, explains that the BRP is paid to every citizen after the retirement age because they have been contributing directly or directly. “Their whole life, people have been contributing to the government through VAT or income tax. Working people have been contributing through both taxes. Targeting will cost the government more in terms of implementation cost that it would save.” He recalls that in 2004, a proposition was made that people earning over Rs 20,000 will not be entitled to the BRP. This proposition was rejected as in 20 or 25 years, with adjustments to wages, everyone would have been excluded from the BRP net. “Targeting is not a good solution. It will be unfair towards people who have contributing their whole life. One of the solutions could be to encourage people getting substantial pension to transfer it to a fund. For the time being, only one member of parliament is doing it.”

[[{"type":"media","view_mode":"media_large","fid":"14522","attributes":{"class":"media-image size-full wp-image-24239 alignleft","typeof":"foaf:Image","style":"","width":"250","height":"239","alt":"Jack-Bizlall"}}]]Jack Bizlall: “We are a country where universality prevails”

Political observer and trade unionist Jack Bizlall claims that Mauritius has a special economy and it is very different from other countries. “Over the years, we have developed some specificities. We are a socialist country where universality prevails across classes and categories of people. Each and every person has the same right to free education, free healthcare and BRP. Many persons, whether in the public or private sector, contribute to the National Pension Scheme and SICOM so as to derive an income when they retire.” He further adds that instead of trying to introduce targeting, the Minister of Finance could have thought of alternatives. “Why not increase the tax-rate for high-income earners. Make them contribute more. Another solution could be the setting up of special funds and encouraging people to contribute. For example, a National Housing Fund whereby those deriving high incomes or pensions can voluntarily contribute towards social housing projects.” He maintains that trying to interfere with the existing system will give rise to discontent. “On what basis will the Finance Minister calculate the amount prescribed?” he questions.

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Actuarial point of view: Bernard Yen: “We missed a good opportunity to do so”

Should the State be providing basic retirement pension to people already deriving a substantial pension or who are still working? For Bernard Yen, Managing Director at Aon Hewitt Ltd, and a trained actuary, it would “be good if the State continues to provide the BRP to all (i.e. universally) set at a level which avoids absolute poverty in old age.”

[[{"type":"media","view_mode":"media_large","fid":"21126","attributes":{"class":"media-image wp-image-35068 alignleft","typeof":"foaf:Image","style":"","width":"300","height":"391","alt":"Bernard Yen"}}]]This should be relatively low in Mauritius after taking into account other factors such as free healthcare and transport, should those remain available, and other pension pillars such as the NPF/NSF, private occupational and personal pension plans, and individual savings. “I also think that it’s high time the State goes all the way with the extension of normal retirement age to 65 introduced in 2008 and only starts paying the BRP as from age 65 by 2018 as it was originally planned,” he adds.

Is it time to introduce targeting? “It is preferable to introduce targeting or some other way of reducing the projected BRP burden in the light of our ageing population and economic challenges. If targeting is introduced, it should be done in such a way that it is not perceived as taking anything back from current entitlements or discouraging people to save. Unfortunately, we missed a good opportunity to do so by increasing the BRP from around Rs3,700 to Rs5,000 in December 2014. We could instead have increased it to, say, Rs4,000 and give the additional Rs1,000 only on a targeted basis. In that way, everyone would be happy and the more needy would appreciate the extra help being given to them.”

The actuary trusts that we can still do something like that but start higher. “For example keep the BRP fixed at Rs5,000 for as long as it takes to reduce its real long-term cost and introduce a means-tested supplement in due course for the most needy. We can also achieve a similar impact in other ways, such as, do not bother with means-testing which can be costly to implement but effectively take back part of the universal BRP from the richest through taxation.”

He argues that what we should certainly avoid is cheap politics. “Whereby we do not say the whole truth to the population in any measure that is adopted, for fear of losing popularity.” Bernard Yen believes that “we should encourage healthy debates and come to a consensus across political parties so that any measure which will take a long time to show its fruits is not reversed every five years or more often only because of successive changes in government.”

[[{"type":"media","view_mode":"media_large","fid":"21127","attributes":{"class":"media-image wp-image-35069 alignleft","typeof":"foaf:Image","style":"","width":"298","height":"317","alt":"Vishal Nunkoo"}}]]What the private sector thinks? Vishal Nunkoo: “Administration should not be costly”

According to the vice-president of private sector think-tank Business Mauritius, and CEO of Velogic, Vishal Nunkoo, we need to adopt a targeting approach when it comes to the welfare state in general. “It will become increasingly difficult to sustain the basic pension system in its current form given the ageing population. As such, I feel that providing the BRP to those who are above 60 and enjoying a substantial pension is not reasonable. I understand that our Prime Minister donates his pension to charitable organisations by choice and there are probably other retirees who are doing it as well, therefore I am of the opinion that those who can afford to forgo, should not be entitled to it.”

Regarding those people who are still in their jobs after 60, Vishal Nunkoo says he is of the opinion that they should not be entitled to basic retirement because they are not retirees. “Otherwise, what is the point of increasing the retirement age as it was done because of the funding of the pension with an improved life expectancy. However, I feel that working beyond 60 should be by choice, with the agreement of both the employer and employee.” One important aspect of introducing targeting according to him is that “its administration should not be too resource intensive, that is, the government should not spend more in its administration than what it would save.”

Healthcare Public hospitals charging insurance companies

The Minister of Health, Anil Gayan, questioned whether the public health system should not charge insurance companies if their clients have subscribed to a private health care plan. Why would it not make sense for public hospitals to charge for its services as any private hospital would do if the same person was to go there? Between the logical proposition and public perception and acceptance, there exists a fine line. Patient advocacy group president, Poorun Singh is categorical about charging for healthcare services. “Mauritius has been known as a welfare state.

We have inherited this since our independence; we cannot discard it like this. It is not and has never been a burden on the government. People pay the government through VAT and income tax for. Since long, we have been against the introduction of such a system.” Regarding charging insurance holders, he replies that “many people are able to pay for insurance as the company they work for contribute to half of the cost. They can choose between private and public hospitals. It’s their choice. We cannot exclude them from free healthcare.” According to the National Insurance Company (NIC), they are studying the implications of public hospitals charging health insurance holders. However, they do believe that insurance companies will have to review their health care policies if the project is implemented by the government.