This ambitious plan raises questions about its feasibility and the strategies the government will employ to ensure its success.Business Standard spoke with experts to gain deeper insight into the matter
The government announced on August 17 the National A universal pension system (UPS) will be introduced. The plan promises participants a benefit of 12 times their contribution over a period of 42 years.
This ambitious plan raises questions about its feasibility and the strategies the government will employ to ensure its success. Business Standard spoke with an expert to gain deeper insight into this matter.
“I still have a lot of homework to do.”
Dr. Devapriya Bhattacharya. Illustration: TBS
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Dr. Devapriya Bhattacharya. Illustration: TBS
Devapriya Bhattacharya
Center for Policy Dialogue (CPD) Research Fellow
The government’s decision to start a universal pension system is a good one. As concerned analysts endorse, this is a joint success for government and civil society. Introducing a national pension system (UPS) for citizens of middle-income countries is just right.
But the announcement comes at a time when the government is approaching national elections. Therefore, it seems premature for the government to start this plan, given that many basic provisions are not yet in place and the institutional coordination mechanism is not in place. This appears to have been a hastily decided decision within the government, which at the moment seems to be driven more by the electoral agenda than by the people’s true financial needs.
Even if launched today, it remains unclear how individuals will enroll in the scheme and how the coordination mechanism will work among the four or five agencies involved. The collection process, collection location and applicable interest rate were not disclosed. Moreover, it is unclear whether the rate of return from these funds will be sufficient to provide the promised benefits to the elderly.
Additionally, the scope of the four specific groups mentioned is also a bit tricky as there is no clear definition in this case.
We will have to wait a long time before we see any real benefit from this system. For now, the government is focused on practicing political rhetoric in terms of delivering on its election promises.
I still have a lot of homework to do. The release date was brought forward due to election compulsion. In the previous budget, no specific budget was included for that purpose. Therefore, there is currently no funding available for this plan. For example, the organization responsible for managing this activity has not yet been designated. Allocation of human resources for this plan is pending and their salaries have not yet been determined. So it seems that it is just a declaration.
“It was supposed to take three to five years to execute this plan.”‘
Asan H. Mansur. Sketch: TBS
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Asan H. Mansur. Sketch: TBS
Asan H. Mansur
Executive Director, Bangladesh Policy Institute
There is no doubt about the importance of a universal pension system. But to announce it suddenly is a hasty decision. I should have made a long-term plan for at least three to five years before executing it.
The government may have decided to roll it out now with the upcoming general election in mind. But they need to realize that this is not just an election issue, it is a 100-year issue.
Therefore, it should have been implemented only after establishing appropriate laws and systematic investment protection measures. But that’s not the case here. We don’t know where the money will be invested, whether the profits will be fixed or regularly adjusted based on returns. There is no such thing as a “fixed benefit” anywhere in the world.
In addition, the retirement age is considered to be 60 years old. However, there is no retirement age of 60 anywhere in the world. People retire at 65 or he’s 67. As life expectancy increases, so should the age of retirement.
Take France for example. For the first time this year, protests have erupted following changes to the Pension Law, which raises the retirement age from 62 to 64.
Inflation should also be considered. You talk about giving them an interest rate of 8% now, but what if the inflation rate goes up to 20% in a few years? In that case, the actual rate of return will not reach 2%. Therefore, we need space for such adjustments.
And frankly, we are not ready to take such a big step yet. We don’t have the ability or the resources to make that happen. Another agency is needed to implement such a plan. Probably the Social Security Administration or something like that.
First and foremost, you need to build an organizational structure through proper planning and setting up steering and advisory committees.
And the responsibility should be put on the beneficiaries. Pensions for the ultra-poor should come directly from the national budget. But otherwise, this plan should be fully self-funded. The government should not spend a single yen of its own funds.
“A pilot project would have helped.”
Dr. Famida Cartoon
Executive Director, Center for Policy Dialogue (CPD)
As mentioned earlier, with increasing government spending and very limited fiscal space due to very low revenue collection efforts, UPS implementation will be a difficult task. Nothing has changed since then, so it’s still a challenge.
And it’s not the only concern here that the government will have to pay after some time. Studies and reports show that the process of collecting pensions is not that simple. Persons enrolled in existing pension schemes frequently complain of harassment. Therefore, the payment process should be smooth and hassle-free.
As far as I know, no pilot project has been conducted to test the feasibility of this plan. A pilot project would have given me a better understanding of the inner workings of the project.
Another problem is the Somota scheme for the destitute. Under this scheme, with a monthly subscription fee of Tk 1,000, contributors pay Tk 500 and the remaining Tk 500 is borne by the government. For the ultra-poor, even 500 taka may be difficult to procure. this can be a problem.
For now, the low bond income, poor and ultra-poor populations will struggle at this rate as they are feeling inflationary pressures.
One question that remains unanswered is what happens when someone fails to make their monthly payments. Will they have to pay the fine next month? It is also unclear what will happen if someone wishes to withdraw.
The fact that you have to go to the bank to pay your monthly contributions can be problematic, especially for people without bank accounts. Also, having to register through an app would be a problem for seniors, especially those in rural areas.
Treasury officials say the implementation of a universal pension scheme will create an opportunity to phase out the number of beneficiaries in existing social security programs, which typically provide benefits and tuition to citizens. It says that it is a thing. Those affected do not believe that the universal pension scheme will significantly reduce the number of beneficiaries of existing social security programs, as it will make it difficult for them to pay the minimum monthly premiums. In fact, we need to spend more on our social safety net.
