Contribution to SPF soon to increase to 10% |12 February 2022

Since the Seychelles Pension Fund started advertising on its website and in the media about an increase in contribution towards the pension fund, many people have been expressing themselves about the decision.

Seychelles NATION enquired more with the Seychelles Pension Fund (SPF) the reasons for the increase. Currently, SPF is hosting several awareness sessions on this particular subject. Right on the onset, SPF reiterates the point that currently it is operating at a deficit, whereby R43 million is being paid out monthly as pension while collection of contributions stands at R39 million only. Therefore, it is imperative that certain changes need to occur to keep the organisation sustainable.

The SPF operates a pension system whereby qualifying members’ salaries are replaced by a monthly pension when they retire from work. For the year 2020, on average, retired members’ salaries were replaced by a pension equivalent to 57% of their last salaries. Pension is calculated based on a formula which takes into consideration the average salary for the last 12 years (for members retiring in 2022), to be increased by one year with each oncoming year, and the total number of years the member has been contributing.

The pension is not calculated on the total number of contributions that members have made monthly as it is not enough to finance a pension for life. Therefore, pension is financed by:

1) the retired member’s lifetime contribution

2) profits from investments and

3) contributions being made by the younger generation who have not yet reached retirement age.

Members need to contribute to qualify for a pension. Qualification period are either the last 10 years continuous contribution immediately prior to retirement or any 20-year period with breaks in between since 1979. SPF is therefore proposing changes in the retirement age and contribution rates as it is currently paying more pension than the amount being collected to finance the pension – R43m pension paid compared to R39m contribution on average per month.

Increase in contribution

The increase is expected to take effect as from April 1, 2022, and it is being proposed to be 5% for employer and 5% for employee.

The SPF has found it necessary to increase the contribution to 10% in view:

(a) of the increase in payment of pension;

(b) more people are living longer;

(c) reduced birth rates

(d) funds will not be enough to pay out pension payment for the next 15 to 20 years;

(e) to guarantee fulltime pension payments.

Voluntary contribution

An employee is encouraged to make voluntary contribution for any amount he/she feels capable of; but a voluntary contribution can start at R50 per month. The voluntary contribution can be claimed at the age of 55 years in full or partial. An interest of 4% is paid per annum on the voluntary contribution.

Retirement age

The SPF is also proposing to increase the retirement age from 60 to 65 years as from 2023.

Upon retirement at 65 years a worker will benefit from a full pension payment. Employees will have the option to retire from the age of 60 years but they will be paid a reduced pension calculated on their gross salary package and this is for life. (See examples of calculation below for ease of reference). Upon reaching 65 years, the amount paid in pension will not increase and they will be assisted with social security from 65 years onwards.

The examples below illustrate the different reduction rates as per different pension amounts:

Planning retirement

Employees are encouraged to at least inform the SPF of their intention to retire at least one month prior. This will enable adequate time to undertake the necessary formalities when processing their retirement benefit.

Consultations with stakeholders are ongoing. Due to Covid-19, the SPF awaits confirmation from the Ministry of Health to host large group meetings, to be able to carry out this exercise with employees in their work places. Zoom sessions have been programmed for interested members as an alternative to public meeting. Notices will be placed in the national newspapers to that effect.

Compiled by Vidya Gappy