Regulation on operational and other requirements for pension and other long-term saving schemes

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REGULATORY DIGEST ON REGULATION N° 53/2022 OF 01/09/2022 ESTABLISHING OPERATIONAL REQUIREMENTS AND OTHER REQUIREMENTS FOR PENSION SCHEMES AND LONG TERM SAVING SCHEME

Background

The provision of pensions is of fundamental economic and social importance, ensuring the successful delivery of adequate retirement income. The effective supervision of pensions, and of the institutions that provide pension products and services, is required to ensure the protection of consumers – a necessary task with any financial product being sold to non-professionals (IOPS, 2010).

To ensure effective regulation and supervision of pension schemes and long term saving schemes, the National Bank of Rwanda (NBR) issued regulation N° 53/2022 of 01/09/2022 establishing operational requirements and other requirements for pension schemes and long term saving scheme to govern the operations of the voluntary pension schemes in general. It also applies to long term saving scheme and mandatory pension scheme provided it does not contradict the Laws establishing those schemes and their implementing orders.

Regulatory Key Highlights

This regulation covers several aspects of the operational requirements of pension schemes and long term saving scheme that include governance of pension schemes, determination of fund ratio and technical reserves of pension schemes, disclosure and reporting requirements, pension scheme investments, surplus, underfunding and contingency plans, as well as transfers.

On governance, the regulation puts in place the duties of the governing body of a pension scheme which include among others, the preparation and approval of business strategies and policies, formulation of funding & investment policies and the risk management framework of a pension scheme. The regulation also requires a pension scheme to have investment and risk management committee as well as an audit committee. Key policy documents to put in place include but are not limited to investment policy, funding policy, risk management policy and strategic plan.

Both defined benefit and defined contribution schemes shall meet the technical funding requirements if their funding ratio is at least 100%. However, a defined benefit scheme is also required to ensure the rates of contribution to the pension scheme are such that the condition of funding ratio is expected to be met for the period for which the schedule of contributions is in force. This regulation requires pension schemes to prepare a funding policy after consultation of an actuary which should be reviewed by the governing body and submitted to supervisory authority. The regulation also provides approaches to valuation of assets and liabilities of a pension scheme, calculation of technical reserves for defined contribution and defined benefit schemes and stability reserves for long term saving schemes.

For reporting purposes, a pension scheme shall keep, or cause to be kept, accounting records sufficient to show and explain its transactions, to enable the determination of its financial position at any point in time and to enable the preparation of financial statements that can be audited. On disclosure, this regulation provides necessary disclosures by pension schemes to prospective members, members and beneficiaries and where applicable disclosure formats are provided as appendices to this regulation.

This regulation requires pension schemes to have a prudently written policy which shall include all relevant or applicable items specified in the Appendix A8 of this regulation. The policy should be approved by the governing body and submitted to the supervisory authority. The investment policy of a pension scheme shall contain an asset allocation strategy determined by an actuary or certified by an investment advisor. Minimum contents and specific considerations to make in the development of the policy are detailed in the regulation.

As per the regulation, any surplus of a defined benefit scheme shall be an asset of that scheme and can be utilized as defined in the regulation (article 30), however the scheme should ensure the utilization of the surplus shall not result in the funding ratio falling below 105%.

This regulation also has provisions on underfunding and contingency plan (Chapter VIII) as well as transfers between pension schemes (Chapter IX).

Important deadlines

Pension schemes whose investments do not comply with the requirements of this Regulation are given a period of six (6) months to submit to the Supervisory Authority their investment restructuring plan from the publication of this regulation in the Official Gazette of the Republic of Rwanda.

Pension schemes and service providers are given a transitional period of one (1) year from the date of publication of this Regulation in the Official Gazette of the Republic of Rwanda to have the governing body committees, key functions and business strategies as required.

Implications for concerned stakeholders

  •  The governing body of a pension scheme must conduct an annual self-assessment related to its performance. A copy of self-assessment is submitted to supervisory authority within three (3) months after the end of a financial year.

  •  Mandatory scheme should publish their audited financial statements on their website within 4 months after the end of a financial year.

  •  Quarterly statutory reports should be submitted to the supervisory authority within 10 days after every end of the calendar quarter.

  •  Pension scheme should notify the supervisory authority any modification in the invest policy within 15 days from approval of such modifications by the governing body.

  •  All assets of a pension scheme should be in the name of a pension scheme and cannot be subject to mortgage.

  •  The aggregate value of equity investments in any single entity, the aggregate value of investments in the sponsoring employer and related entities, investment in deposits in any single deposit taking financial institutions and aggregate investment within other Member States of the East African Community (EAC) shall not exceed 20%, 10%, 20% and 30% respectively.

  •  Investment shall be conducted in accordance with the assets class investment limits as provided in Appendix II of this regulation.

  •  This regulation repeals the regulation N° 05/2016 of 26/09/2016 of the National Bank of Rwanda establishing operational and other requirements for pension schemes and all other provisions inconsistent with this Regulation.

Click here for more details:

https://www.bnr.rw/laws-and-regulations/insurance-and-pension/pension-laws-regulations/