One of the main attractions of government service is the pension benefit that a public servant receives on his/her retirement. The benefit being an assured one is seen as a financial protection for the retired government servants and also for the families, even after their death. This is a huge incentive if seen in the context of Bangladesh society where financial security for elderly people is almost non-existent.
However, the money that is being spent every year on pension benefits given to the public servants proves to be a big burden on the government or, for that matter, on the taxpayers. That size of the burden is becoming bigger every year. This is evident from the allocations made in the annual budgets for meeting the pension payments. The government spent, according to a report published in The Financial Express last week, Tk71.29 billion on pension payments in the fiscal year 2015. It increased to Tk 102.84 billion in the next fiscal year and Tk 146.67 billion in the fiscal 2017.
The amount of money spent on pension benefits in the fiscal 2017 was equivalent to 8.0 per cent of the revenue budget and 0.75 per cent of the gross domestic product (GDP) of that year.
The substantial rise in pension payments during the last financial year is attributed to a few reforms, in terms of increase in benefits to retired government servants. The size of the annual payments would go up every year and more so during pay hikes.
The government keeps budgetary provisions for payment of pension benefits to the retired public servants. It does not maintain any separate fund for long-term pension payments.
Experts in the area are now thinking loudly about making provisions for funded system of pension payments. They feel that funded pension system is solvent over the long term as substantial earnings could be received from different types of investment.
The government has been pursing 'pay as you go' pension policy as a matter of tradition. Besides, it does not have enough resources to create a separate fund for pension payments over a longer period. So, lack of initiative coupled with resource-scarcity is largely responsible for the government not opting for funded pension system.
But there could be one alternative---contributory pension scheme--- that could help lessen the government's contingent liability in the form of pension payments. It could also facilitate execution of the government's objective of providing pension benefits to the private sector employees.
Neighbouring India has done away with the traditional system of pension payments and introduced a contributory system, called, National Pension Scheme (NPS). It, however, has been facing strong opposition. Some states are still continuing with the old system and government officials in some other states have been agitating against the NPS and wanting re-introduction of the old system of pension payments. However, the NPS was made applicable for government employees who were appointed on or after January 1, 2004.
The NPS, introduced by the Indian central government, does not ensure any assured amount of pension to the employees despite their life-long contribution to the pension fund. All the benefits would come from the investment of the pension fund money in the market.
Two types of accounts are suggested by the NPS. The first one is mandatory type, funded by an amount equivalent to 10 per cent of basic pay and dearness allowance (DA), made available by both the employee and the government. No interim withdrawal from the fund is allowed. Private sector employers and employees participating in the mandatory type NPS are entitled to tax cuts on amounts equivalent to their contributions and the second one is voluntary type having the facility of withdrawals from the funds any time. But the progress of the NPS has not been smooth until now because of a few implementation challenges.
Still, the NPS has created pension opportunities for employees of both organised and unorgannised sectors.
Finance Minister AMA Muhith on a number of occasions highlighted the need for putting in place pension schemes for the private sector employees. He, perhaps, has not thought about any contributory pension scheme for the government servants. Most likely the bureaucracy would oppose tooth and nail any contributory pension scheme, for they want a ready fund at the end of their service life and an assured monthly retirement allowance. However, it would have been a paradigm shift from the existing assured return philosophy to defined contribution philosophy if the government could introduce a contributory pension scheme.
Not many private sector employers in Bangladesh meet the lawful dues to their departing or retiring employees. Employers do take advantage of the situation and deprive their employees of their lawful dues. The government should punish this type of employers while devising an appropriate and mandatory pension scheme for the private sector employees.