Can equitable security be ensured?
On August 17, the government introduced a broad pension plan for citizens aged 18-50 years. Though the ideal age range would be 25-60 years, this is still a positive initiative. Until now, pension plans have been like life insurance schemes, wherein the amount that a person gets back depends on how much money they had deposited. But the philosophy of the universal pension scheme goes deeper. It is primarily concerned with offering social security during retirement, rather than providing excessive returns based on multiplied dividends as a percentage of interest on the deposited money. The aim of universal pension is to ensure a basic cost-of-life amount for one to live off of during retirement. Nonetheless, global norms often link increased pensions to higher savings, aligning with improved living standards. The pension system aims to cover essentials and provide an adequate income replacement for the retired.
As per the new universal pension programme, those who participate from age 18 can later enjoy the most benefits. However, since completing education in Bangladesh takes roughly 25 years, and 30 is the current age limit for government job applications, a better minimum age for participating in the pension scheme could be 35 years. In this scheme, as the entry age rises, benefits naturally decline. Pension rewards range from 2.3 to 12.3 times one's total contributions. With rising inflation, the future value of these payouts might diminish significantly. Government contribution is also noticeably low, making the scheme less suitable for the impoverished masses.
For all latest news, follow The Daily Star's Google News channel. Pension schemes, aimed at the poor with a seven to eight percent interest rate over 10 years or more, won't guarantee a decent living at age 60. Nor will it cover essentials. As such, contributions should be tied to earnings, one's saving ability, or the current value of different job sectors, thus reflecting financial capacity. Pension calculations should consider future costs of living, keeping in mind uncertain inflation and purchasing power.
A cornerstone for the universal pension philosophy would be intergenerational solidarity or demographic mapping. This means that the current workforce will contribute to the pension system to support current retirees, with the expectation that future generations will do the same. Such systems aim to address inequalities and provide additional support to vulnerable groups. After all, if a pensioner's intention is to save money for a few decades and then enjoy it, a private pension scheme, and not a public one, would be the option for them.
Pension schemes, aimed at the poor with a seven to eight percent interest rate over 10 years or more, won't guarantee a decent living at age 60. Nor will it cover essentials. As such, contributions should be tied to earnings, one's saving ability, or the current value of different job sectors, thus reflecting financial capacity. Pension calculations should consider future costs of living, keeping in mind uncertain inflation and purchasing power.
In order to establish a substantive pension system, it is imperative to ensure the assignment of autonomous government bodies for regulation, engagement of the finance ministry for social security subsidisation, collaboration with insurance firms, commercial banks, and financial entities as investment facilitators, and the involvement of public and private independent bodies for oversight. However, in the context of Bangladesh, these components fall within the purview of the Ministry of Finance, with reliance on one government-owned bank. Unfortunately, this bank has been beset by numerous grievances, encompassing capital insufficiency, erosion of depositors' trust, instances of loan fraud, loan defaulting, and instances of managerial malfeasance.
Given the current economic turmoil, marked by a substantial budget deficit funded through money printing, the introduction of a universal pension scheme has triggered doubts regarding its credibility. A backdrop of capital and deposit crises in commercial banks, instances of loan fraud, money laundering, frequent loan rescheduling, and politically driven defaulting has significantly eroded public trust in the financial sector. Consequently, some view public pensions not as a laudable government initiative, but rather as a potential avenue for misappropriation and looting. Traditional sources of financing (such as savings certificates, bonds, bank loans, and funds from self-governing entities) have diminished considerably. This has led to suspicions that the public pension system is being employed as a method to accumulate funds, particularly in the absence of substantial consequences for major financial improprieties. Given the prevailing lack of accountability for major financial scandals, concerns naturally arise regarding the ultimate accessibility of funds within the pension scheme.
Transparency is also a concern in terms of the utilisation and investment of the collected pension deposits. While pensioners have the option to acquire half of their deposited amount as a bank loan, it is imperative that pension funds do not become a new source for covering up budget deficits in other areas.
Questions may also arise regarding the fairness of retirement allowances, as well as the degree of contribution from employers and the government to the pension accounts of low-income pensioners. Under the Somota scheme, for low-income people, the monthly subscription is set at Tk 1,000, with applicants covering one half and government subsidies paying for the other. After a decade, the individual availing the scheme will receive Tk 1,530 per month. But, presently, this amount can only buy less than 2 kg of beef. The future purchasing power of this amount is also highly uncertain due to dollar inflation. Bangladesh's poverty and extreme poverty thresholds have been skewed by dollar inflation, producing the need for a re-evaluation. In reality, extreme poverty should not be pegged at $1, but closer to $3. Employing the current purchasing power parity criteria may lead to inaccuracies in identifying individuals below the extreme poverty line, which may lead to the exclusion of underprivileged populations in their retirement.
The exclusion of social benefit recipients from the universal pension scheme is problematic. Bangladesh's poverty alleviation approach is vulnerable, with the current allowance of Tk 600-900 rendering true poverty reduction unfeasible. An innovative pension programme is necessary for the disabled and elderly underprivileged, with full government backing. Safeguarding the informal labour sector (which consists of extremely poor, impoverished, and low-income individuals) is the state's responsibility. While the Progoti scheme does not obligate the engagement of private employers (except for selected reputable corporations), most may not voluntarily contribute to the scheme. Also, many segments of society such as farmers, rickshaw pullers, and construction and transport workers cannot afford the monthly payments of Tk 1,000 to Tk 5,000 required by the Surokkha scheme. After all, those struggling to afford food, nutrition, or medicine cannot possibly be expected to partake in such a pension programme. Thus, the government's contribution of at least 25 percent of the deposit seems necessary. Moving on, the target is to acquire 100 million pensioners from the labour market, but no provisions have been made for the unemployed in the universal pension scheme. With tens of millions of the population being unemployed, addressing future unemployment benefits and pension coverage is vital.
While a public pension scheme is crucial, discrepancies persist within the government's new pension framework. Moreover, given the current absence of rule of law, rampant corruption and a lack of accountability (compounded by prolonged economic challenges), the question arises: in times like these, will individuals feel secure depositing money to the government at all?
Faiz Ahmad Taiyeb is a Bangladeshi columnist and writer living in the Netherlands.
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