Going by the formal definition, a universal minimum pension makes sure that any person above a certain age (different for each country) will receive a monthly stipend to support their daily expenses. The average lifespan for people around the world is climbing and because the retirement age is fixed, it is becoming more and more challenging for the elderly to support themselves for years after retirement, without a fixed income coming in. In a lot of countries around the world, governments have taken up the responsibility to support these people in the winter of their lives through a pension scheme. These schemes involve people paying into a pension account per month while they are in their work lives and the accounts then pay them back when they retire.
The government of Bangladesh recently announced its plan to offer this pension scheme to all citizens of Bangladesh above the age of 60 within 2023. The news was broken to the media by Finance Minister AHM Mustafa Kamal after a detailed meeting of the Cabinet Committees on Public Purchase and Economic Affairs. The scheme is still a work in progress and the ironed-out version, complete with the finalised laws and regulations will be rolled out to the public within six months to a year.
The scheme is the fulfilment of the promise made by the Awami League government in its 11th parliamentary elections manifesto as well as mentioned in the 2020 national budget speech, with Prime Minister, Sheikh Hasina, as the mastermind behind the idea. The idea has come to fruition 8 years after the welfare initiative discussions, which promised financial security for all citizens post the retirement age.
The average life expectancy of Bangladesh is 73 years now and is expected to climb up to 80 years within the next 25 years and to 85 years by the year 2075. The number of people in the country who are aged 60 plus are to quadruple between 2020 and 2040 which means that each decade will be burdened with an additional 10 million elderly population.
At present, only government employees are eligible for pension and their gross pension per month has more than doubled in the last 10 years. A 5% dividend is added every year to further sweeten the pot. If the pensioners pass away, vulnerable groups like their widows, minor or disabled children get the benefits for life. However, no such schemers are available for the employees or their families in the private sector of the country. A few formal companies do provide gratuity and provident fund benefits, but those working in the informal sector do not get to avail even this much.
This universal scheme promises to bring even the private employees under the pension umbrella. Bangladesh may be a young nation now but this workforce will officially graduate towards the ageing demographic as early as 2030. The average life expectancy of Bangladesh is 73 years now and is expected to climb up to 80 years within the next 25 years and to 85 years by the year 2075. The number of people in the country who are aged 60 plus are to quadruple between 2020 and 2040 which means that each decade will be burdened with an additional 10 million elderly population. In the face of this dilemma, the pension scheme has come like a sigh of relief for the ageing. The government considers it their responsibility to look after the people who will go up to live 15, 20 and even 25 years after their source of monthly income dries up and make sure they live dignified, fulfilled lives.
Working population between the ages of 18 to 50 will be allowed to register under the scheme and will be able to avail the benefits from 60 years until death. This will include those working outside Bangladesh as well but will not, at least initially, take into consideration those already receiving or eligible to receive pensions under government service. Aspiring citizens can open pension accounts by providing information on their ID cards and will become eligible to receive stipends if they pay a fixed, minimum monthly fee, as low as BDT 100, for at least 10 years without a break. Payment is made easier through online and MFS options and those working overseas can even pay per quarter. Changes to one’s profession will have no effect on the pension account. The scheme is optional for the citizens of Bangladesh for the first few years of the pilot and amendment stage but the government is considering making it compulsory once it is up and running smoothly.
The finance minister made a rough calculation that someone saving BDT 1000 every month from 18-60 years of age will receive BDT 64776 every month after the age of 60, which would include a 10% profit and an 8% gratuity on invested instalments.
Particulars that are currently known about the scheme are: Account beneficiaries must ensure annual deposits so the account does not get suspended. Suspended accounts can later be revived by paying late fees and the original dues. Pension rates depend on the deposit amounts plus the accumulated dividends per year once the beneficiary is 60 years old. They can then receive a monthly stipend until the end of their lives. Each pension account has a nominee who will receive the monthly pensions for a fixed time (80 years of pensioner’s age) on behalf of the account holder should they pass away before the age of 65. It is not possible to withdraw the entire sum of money from the account in a go but half of the deposit can be withdrawn as a loan to be paid back with interest. It should also be noted that if an account holder passes away before fulfilling their 10-year deposit quota, the deposits in the account will be handed over to their nominee along with whatever profits incurred. The pension account will be considered as an investment and will fetch tax rebates and interest. The monthly stipend will be free from income tax and the government will invest the money deposited to the fund to ensure the highest financial returns.
The finance minister made a rough calculation that someone saving BDT 1000 every month from 18-60 years of age will receive BDT 64776 every month after the age of 60, which would include a 10% profit and an 8% gratuity on invested instalments. The amount will increase or decrease as the saving amount varies. He mentioned this was simply a projection and the real picture will emerge once laws are passed and the authority established.
The government is expected to bear all associated expenses for the related costs and authorities and will invest the deposited money with a 10% interest on it, in accordance with prescribed guidelines and will therefore aim to maximise its profits. These investments will mostly be in treasury bills, bonds and profit-making infrastructural development projects which the government hopes will reduce its dependence on borrowing from banks. The returns that come from these investments will be poured back into the fund. The government also aims to pay into private sector pension funds even though the percentage contribution is yet to be decided.
The government is also expected to pay into the pension funds by reducing its spending on existing social safety programmes like old-age allowance. As more work needs to be done for the scheme to crystallise, amendments and suggestions will be incorporated by and by. For now, the plan is for the government to give back as much as depositors pay into their accounts but the policy may be modified by observing how other countries operate similarly offered schemes. Once the entire scheme is up and running, the government will aim to bring in the public service workforce under it as well. The pension scheme will likely be implemented in its full scope by 2025. In the meantime, those working in the government service sector and those who will join until before the universal pension scheme rolls out will be eligible to receive pensions directly from the government just like before. Others not eligible to avail this scheme are ‘solvent citizens’ or those who have enough of a retirement nest egg to survive on, as the government only intends to help the marginalised people.
The aim of the universal pension scheme for Bangladesh is threefold. First, it safeguards the future of the working population of the country and ensures that they stay above the poverty line towards the end of their lives. Second, it encourages the poor of the country to save money which helps protect them socially and generally increases their propensity to save and finally, it takes pressure off bank loans from the government and offers another solution for investment and economic growth of the country.
As Bangladesh moves from a least developed country to a developing country, and from a low-income economy to a lower middle-income economy, its citizens, some 40% of whom are without pensions, look to the government for increased financial security and overall social welfare. As such, a universal pension scheme will be a great tool to reduce inequality in income distribution of the economy. Experts feel that this is the right time to introduce such a scheme, in light of the growing elderly population demographic and feel that it is a positive sign that the economy of Bangladesh is being able to think along these lines. Prime Minister Sheikh Hasina has directed the finance division to urgently enact the laws pertaining to this scheme as citizens await the implementation with baited breath.
