Last week the government has had to make a U-turn on its decision concerning the timing of pension payments. Meanwhile, the opposition is calling for a hike in the basic retirement pension by Rs 2,000. Both these episodes show how the pension has become a potent political cudgel. And how Mauritian politics has decisively shifted from appealing to the young once upon a time to now looking at the old.

The U-turn

Last week the cabinet announced that it was making a U-turn on its decision to change the timing of payments of the basic retirement pension (BRP). Last September, the government had decided to make pension payments on the fourth working day of the month, rather than on the first, as it was previously. However, the government has now announced that it was going back to the old formula. At the same time, the leader of the opposition, Xavier-Luc Duval, has demanded that the government hikes the BRP from Rs 9,000 to Rs 11,000 in the 2022-2023 budget to make up for rising prices. 

The government returning to the old formula of pension payments is not such a surprising thing. Its main justification for doing so was to combat the problem of overpayments of pensions, which according to the 2019-2020 National Audit Report had reached a backlog of Rs118.7 million by June 2020, growing from Rs114 million in June 2019. The problem, the report pointed out, was not so much about on what day the pensions are paid, but rather in weak control mechanisms and the inability of the government to recover past overpayments. Consider this: out of the Rs 118.7 million in overpayments outstanding in the government’s books in June 2020, Rs 35.4 million had been paid before 2015 and 83.3 million since 2015. Just how bad the government’s recovery of overpayments is, out of the Rs114 million overpaid until July 2019, only a mere Rs15.7 million had been recovered. 

What this, and the opposition’s demands for hiking BRP still further, demonstrate is just how politics within Mauritius has shifted decisively away from courting younger voters to courting the elderly.

The experiment in 2004

The roots of how the pension came to occupy such a hallowed place in Mauritian politics go back to an experiment in 2004. Until that time, international lenders, such as the International Monetary Fund (IMF) and the World Bank, were warning that the BRP system – an unfunded system paid out of government funds – was becoming unsustainable. “The reports warned that we would be going from spending two percent of GDP to eventually spending six percent of GDP on pensions,” says Bernard Yen, Managing Director of Aon Hewitt. So, in December 2004 the then-government composed of the MMM and the MSM proposed to reform the BRP system by subjecting it to a meanstest. Under the new system, anybody over 60 years of age who was getting more than Rs23,000 in income from other sources and pensions would not be paid the BRP, those getting between Rs18,000 and Rs23,000 would get a BRP pension but not the full amount, while only those pensioners getting an income of less than Rs18,000 would be paid the full BRP. The trouble was that this reform was conducted in a clumsy manner: pensioners were asked for fill in income declaration forms to account for all incomes through rents, interest payments and dividends and were warned that any misreporting could lead to imprisonment. There was no way of accounting for households that shared income and costs and in the case of many poorer pensioners, this was the first income declaration they would be filling out in their lives. “It was very heavy and demanding on pensioners, many of whom started panicking,” explains Yen, “they were being asked to account for their income right down to a rupee.” 

For all this heavy-handedness, the results were far from spectacular: out of the 110,000 people receiving the BRP at the time, only a paltry 4,000 were found to be no longer eligible for the BRP. The experiment had not yielded significant savings on pensions and handed the opposition a hammer with which to clobber the government. “The MMM-MSM government just faced a total revolt on their hands while the Labour Party in the opposition campaigned on a platform of doing away with the means-test and making the BRP universal once again,” says Lindsay Collen of Lalit. 

The realization that was dawning on the government in 2004 was the same one that faced the colonial British administration when they first introduced the BRP back in 1951. With little arable land outside of the sugar industry the British could not prop up incomes by encouraging the elderly towards farming. And the need to keep sugar prices – sugar at the time made up 98 percent of Mauritian exports – competitive on the world market meant that wages in Mauritius had to be kept low, which meant that relying solely on contributory pension or insurance systems was out of the question. So, the BRP was introduced as the major social safety net for the elderly, paying Rs 15 a month. 

However, by 1957, the British government discovered that Mauritius being so small, it was not worth the effort of investing in additional bureaucracy to administer means-testing for the pension and abolished it in 1957. Instead, a simple income tax rule was applied – if you were making enough to qualify to pay an income tax, you did not get the BRP. By 1974, this income tax rule too was removed and the BRP became universal. By attempting to go back in history, and resurrect means-testing the pension, the government in 2004 was re-discovering all the lessons that the British administration had already learned before independence. “This is also why means-testing was so unpopular, it just reminded people of the old colonial days,” argues Collen, “what also goes unnoticed is that a huge proportion of poor and middle-income households in Mauritius rely on the pension to maintain a standard of living. It’s like a social safety net for the extended family as well.” This logic is not lost on the government. After all, when in 1993, it introduced higher BRP payments to pensioners aged above 90 years, it did so under the logic that all that extra cash coming into the household would incentivize households to keep older relatives within the family home.

No country for young people

The sacred place that the BRP has come to occupy within Mauritian politics is also reflective of a shift in the political culture of Mauritius. Once upon a time Mauritian politics revolved around youth and the need to give them jobs. In 1940, the British colonial administration invested heavily in expanding education and healthcare in its Mauritian colony. Its efforts led to a drop in death rates – from 28 out of every 1,000 adults in 1936 to 12 out of every 1000 by 1956 – and higher birth rates – from 38 out of every 1,000 in 1945 to 50 out of every 1,000 in 1950 and significantly lower infant mortality. The resulting population boom had impacted the politics of Mauritius for decades to come. By the 1970s, a younger generation was challenging the older one, and politics become the struggle of the young and for jobs. And this language dominated Mauritian politics until 2014 when political parties felt compelled to appeal to the youth and decry the lack of employment generation. 

Now, politics has finally caught up with the fact that plunging birth rates and increased life expectancy is turning Mauritius into an ageing population. One reason why appeals to hike the pension succeeded in 2014 and all political parties seemed to throw concerns about the sustainability of the BRP overboard is that by the time the 2019 elections rolled around, out of the 1.2 million people in Mauritius, 224,277 were pensioners getting the BRP. And the weight of elderly voters is only set to grow further. According to projections by Statistics Mauritius, in 2021, 18 percent of Mauritius were aged 60 and above (thus beneficiaries of the BRP). By 2023, just ahead of the next election, they will grow to make up 20 percent and growing still to 24.9 percent by 2033; 29.5 percent by 2043; and 35.4 percent by 2053. “The elderly are now a strong electoral lobby just based on sheer numbers,” explains Dinan, “and the proportion of the elderly is only increasing. This is a fact of political life now.” Already, the elderly make up about a quarter of the electorate (those under 18 aren’t allowed to vote). “What is happening is that we are steadily falling into a form of populism, which is doing what influential electoral lobbies want,” Dinan warns. After 2014, the winning ticket now is chasing elderly voters – with the BRP as the apex issue of politics. What this shift means is that younger Mauritians and their concerns about jobs are increasingly taking a back seat. 

While political parties may be mesmerized by the electoral dividends of chasing elderly voters through outbidding one another on the BRP, the problem is that the entire system is a house of cards and being propped up by the very younger voters that the politicians are ignoring. If in 2004 the IMF was warning about the BRP eventually taking up six percent of GDP by June 2021, now it was forecasting that with all the pension hikes and promises to bring it up from Rs 9,000 to Rs 13,500 it will take up 8 percent of GDP by 2023-2024. “None of this is sustainable at all, and the IMF has continued to draw attention to this fact,” says Dinan, “retired people don’t bring much to the economy by way of production; this is done by those between 25 and 60 years of age. So, you see on the one side we have a large and growing crowd of people to be paid more and more and on the other fewer and fewer people to pay for it.” One added complication is that, aside from falling birth rates, an estimated 1,800 working-age Mauritians emigrate out of the country each year, according to government estimates coming from Statistics Mauritius. 

“We have a choice to make,” says Yen, “to have the government able to afford paying more and more you will have to increase taxation on those that are working.” In a sense, that it what the ‘Contribution sociale généralisée’ (CSG) system introduced by the government in 2020 is set to do: help pay for the extra Rs 4,500 to be added to the pensions by the end of this mandate promised by the government by taxing private sector and informal sector employees (but not civil servants – another influential political lobby in Mauritian politics). The trouble is that the IMF has warned that the pension hike to Rs 13,500 will lift the weight of the pensions from 4.5 percent of GDP today, to 8.5 percent of GDP by 2023-2024, the weight only increasing with each passing year, given the ageing population. On the other hand, increased collections under the CSG system will only account for just over 1.5 percent of GDP. So, you see the problem. 

Political parties know what the problem with the BRP is. After all, before 2014, they themselves were warning about it and coming up with proposals to resolve it. But by politicizing the BRP and turning it into a vote-grabbing gimmick, what they and elderly voters who fall for it, are doing is pushing that very BRP, which they claim to hold so dear, off a precipice.

The wake-up call

All this is to say that when the government in 2004 had tried to introduce means-testing the BRP, it had inadvertently walked into a hornet’s nest with little to show for it. The Labour Party used it against the MMM-MSM government, and it helped deliver victory to the Labour Party in the 2005 elections. In July 2005, the means-testing for the BRP was abolished, little over six months after it had been introduced. “That was quite a wake-up call for political parties,” insists Collen. But by punishing the MMM-MSM in this way, the electorate had also dampened any remaining enthusiasm amongst any of the political parties to reform the BRP pension system as well. “Right now, there is not a single political party, not one of them, that was to re-introduce anything like means-testing again,” says economist Pierre Dinan. 

Fresh off its electoral victory in 2006, the Labour Party-led government announced that it would deal with the pension problem by raising the retirement age from 60 to 65 by 2008. However, by the time 2008 rolled around, the retirement age for other pension systems, such as the National Pension Fund, the sugar industry and private employment pensions were raised to 65 but the BRP remained as it was at 60. “The government just got cold feet and said they would not touch the BRP,” recallsYen, “this was a bit ridiculous since all those other pension funds were contributory ones and it was precisely the BRP, an unfunded system paid out of tax revenue, that was the one that needed reforming”. The lesson for 2004 was still fresh in everyone’s mind and new elections were due in 2010. The government in 2008 had no intention of stepping into the same minefield that had helped blow the MMM-MSM government away.

Another idea that came up in 2006 was to regulate increases of the BRP by indexing them to consumer price inflation. “The idea of aligning the BRP to the CPI was to limit expectations of future BRP increases to inflation. But this came apart in 2014,” posits Yen. Until 2014, political parties were merely wary of reforming the BRP system for fear of being punished at the polls. But it was the 2014 election that saw the BRP being wielded like a political cudgel. During that election, the alliance of the MSM-PMSD-ML pledged to hike an already unsustainable BRP from Rs 3,623 to Rs 5,000. It helped them win in 2014. “That promise seemed to be a winning formula, so now the temptation was there to keep making such promises.” A pension reform committee headed by then-social security minister Etienne Sinatambou was suspended with no results in 2017 and by the time the 2019 elections rolled around, all the major parties entered a veritable bidding war over pensions. 

The MSM promised to hike it to Rs 9,000 and eventually to Rs 13,500, the Labour Party-PMSD bloc promised to increase it to Rs 10,000 and the MMM promised to align it to the minimum wage, which was about Rs 9,000 as well. The irony was not lost on anyone that it was the MMM and the MSM that in 2004 were talking about means testing over concerns of the future sustainability of the BRP, while the Labour Party in 2006 toyed with the idea of raising the retirement age over the same concerns. “The problem is that political parties today have no programme but just these shopping lists promising to throw money around,” argues Collen, “they know that touching the pension means losing the election; so now they are all on the lookout for ways not to lose an election.”