The recent announcement by the government to introduce a universal pension scheme (UPS) in Bangladesh from the 2022-23 fiscal year is a welcome and timely move. The ruling party committed to the scheme during the 2008 general elections, and it has been planning to introduce it since FY2017-18. The aspiration to provide support to the country's senior citizens is featured prominently in various government documents. The seventh and eighth Five-Year Plans have both outlined the need for UPS. The 2015 National Social Security Strategy (NSSS), too, talks about social safety for all.

The need for a UPS is felt particularly because the average life expectancy in Bangladesh has increased—currently, it's 73 years. While this increased longevity, in a way, indicates our better socio-economic situation, the absence of any old-age support mechanism puts our senior citizens in a vulnerable position. The average age of the Bangladeshi population is only about 26 years, indicating the prospect of a useful demographic dividend. But the size of our ageing population is also increasing. According to the Bangladesh Bureau of Statistics (BBS), old people will make up 20 percent of our total population by 2031, compared to 11 percent in 2017. Except for the public sector, there is no opportunity for pension in Bangladesh. There is the option of provident fund and gratuity in some organisations in the private sector and autonomous bodies. Meanwhile, the government provides old age allowance under its social safety net programme. But about 40 percent of the population currently don't have any pension.

Therefore, this initiative to provide security during old age through the UPS could bring relief to many people. However, it all depends on how the scheme is implemented. A number of issues will have to be taken into account and several preparatory activities undertaken to successfully implement the scheme.

First, in the face of increased government expenditure and a very limited fiscal space due to extremely low revenue collection effort, implementing the UPS will be a challenging task. The government is already facing difficulty in continuing several infrastructure projects, whose costs are rising manifold from their originally estimated costs. The finance minister is expected to spell out where the government's contribution to the scheme would come from.

Second, the issue of accountability and good governance is at the forefront as the proposed UPS is discussed, since there are instances of poor governance and misappropriation of resources whenever a large amount of money is involved. This is not uncommon even in the case of social safety net programmes. The government has several such programmes that provide direct cash support to the poor and old people. However, studies and reports have found many incidents of mistargeting and rent-seeking from those allowances. Many of the poor remain excluded from the beneficiary lists, while many others who are financially better off manage to be included in the list through bribing.

Third, the institutional and legal framework of the UPS will have to be designed with specific terms of reference for the authority of the pension scheme. The government has prepared a strategy paper on the proposed UPS, and will also prepare the legal and regulatory framework to operationalise it. It also plans to have a separate authority to implement the UPS. Issues such as responsibility and modality of work of the pension authority will be crucial to the scheme's smooth operation. The authority has to ensure good quality of services to the UPS beneficiaries.

Fourth, proper management of this fund will be crucial. In many developed countries, banks manage pension funds by investing in profitable ventures. Sadly, Bangladesh's banking sector suffers from various governance-related challenges. This sector should prepare adequately to manage the UPS fund, doing which will require institutional reform to put an accountable system in place. Investment decisions must be made in a way that will generate higher income and ensure smooth transfer of people's income after their retirement.

Examples of good practices may be a guide for us in implementing the UPS. The underlying factor behind effective pension schemes in other countries is the efficient management of such funds backed by a strong legal framework. The governments in those countries are investing the funds to earn profits, and using a part of the fund to cover the operational costs while the other part goes to the people. This is a smooth process, since the governments don't have to face any pressure, and the people are happy to receive their pension income.

Fifth, transparency is of paramount importance on issues such as how and where the pension fund will be invested, and how the profits will be distributed. People want to have their money safe and get it back without hassle. The operational and administrative costs should be within acceptable levels, so that the pension account holders receive a good return on their money. A robust supervision and monitoring system should be in place to avoid wastage. The beneficiaries should receive regular statements with updates on their income. The UPS should be fully automated with all relevant information available to the pension account holders.

Overall, the government's initiative to introduce a UPS is praiseworthy. This is commensurate with Bangladesh's aspiration to become an upper middle-income country by 2031 and an advanced country by 2041. Its implementation will determine whether we are moving towards that direction or not. This fund should not become another source of corruption, and pensioners should be able to receive their money instantly—without giving any bribe.

Dr Fahmida Khatun is executive director at the Centre for Policy Dialogue (CPD). Views expressed in this article are the author's own.