(Seychelles News Agency) - All employees in Seychelles will pay an additional 1 percent to their mandatory pension contribution deducted from their monthly salary starting in July, a top official said.

The chief executive of the Seychelles Pension Fund, Lekha Nair, said the increase is important because the current rate paid -- 2 percent by both the employee and the employer -- is not sustainable.

“The current contribution can only sustain Seychelles Pension Fund for a further 11 years taking into consideration the rate of pensions and benefits being paid, and dwindling contributors as the working population decrease and ageing population increase,” said Nair.

According to a projection by the National Bureau of Statistics in 2015, people have on average lived for eight years after retirement, but by 2045 this will increase to 18 years, putting a much greater burden on the retirement system. 

Employers will pay a further 0.5 percent into the system starting in January 2018 and an additional  0.5 percent starting in January 2019.

Nair said the plan is to “gradually increase contributions of both employer and employees to 10.5 percent by the year 2035, with 1 percent increase every five years.”

The current 4 percent contribution to pension in Seychelles is the lowest in the world. The average contribution in the Indian Ocean region is around 10 percent.

“After attaining retirement age, pensioners receive the money they have contributed in a lifetime within the space of eight months,” said the chief executive.  

Nair said, “We have 41, 000 members, which accounts for 90 percent of the labour force. We need 6 billion rupees ($446 million) to cater for them. At present, we only have half of that amount. This is why we are investing in equities, treasury bills and bonds to get additional funds.” 

According to the Seychelles Pension Fund, out of the population of 93,000 people, 66,000 are of working age. Out of this, 46,000 are working, but only 41,000 are contributing to the pension.

To be eligible for a retirement pension you must have made a minimum of 10 years continuous monthly contribution or 20 years of aggregate contribution to the Social Security Fund or Seychelles Pension Fund. 

Where a member has been drawing two salaries monthly, the pension shall be based on the average of the highest monthly salary earned over a period of five years before retirement.

The compliance officer of the Seychelles Pension Fund, Jane Suzette, gave a scenario on how the new percentage will be debited from the monthly salary.

“A person who is earning 5,050 rupees ($378), will now see an additional 51 rupees ($3.80) being removed on their monthly salary,” said Suzette.

The change in contribution was approved by the National Assembly as part of this year’s budget.

What will happen if you have not contributed to the fund for a minimum period of 10 years or the aggregate period of 20 years prior to retirement?

“In that case, the monthly mandatory contribution and voluntary contribution standing in your account up to the date of attaining retirement will be refunded to you upon retirement with interest as a lump sum payment,” said Nair.

Seychelles, a group of 115 islands in the western Indian Ocean, operates under a benefit pension, whereby the pension is defined before reaching retirement age -- 60 or 63.

The Seychelles Pension Fund was set up in 2006 and the present pension system was introduced after 2011.