The decision to introduce the Universal Pension Scheme (UPS) from the next fiscal year is a laudable move. To ensure a sustainable social safety net, a policy decision has been taken by the government, and a draft 'Universal Pension Management Act, 2022' has been approved.
After completing the required formalities, this essential law will be presented in the National Parliament and is expected to be passed by the next fiscal year. Introducing the universal pension scheme also corroborates the spirit of SDGs and will endorse the welfare aspirations of the present government.
The UPS can play an important role in our country as over 85% of the workforce are employed in the informal sector that does not provide any type of social security framework.
Previously, family income was the most important source of support for senior citizens in Bangladesh. As a social change is taking place and the breakdown of the joint family is becoming more prevalent, a social support system is much needed.
Although the government at present is assisting nearly 11.5 million senior citizens, the allowance is not sufficient. The average life expectancy of a Bangladeshi citizen is 73 years right now which will rise to 80 and 84 years by 2050 and 2075, respectively.
In the next three decades, the present working force will be alive for around twenty years after their retirement. Against this backdrop, introducing a universal pension scheme will help to ensure the basic rights, dignity, and income security in their autumn of life.
People from 18 to 50 years, except the government employees, will save a certain amount monthly. A pension authority will manage this fund and will provide benefits to the pensioners when they reach retirement age.
Money collected from the pension fund will be invested in treasury bills, bonds, and other profit-generating infrastructure development projects, reducing reliance on bank borrowings.
In addition, the government will contribute to private-sector pensions, though the exact ratio is yet to be determined. When the pension scheme is fully implemented, the government will reduce its funding for many social safety net programmes, such as the old-age allowance, and redirect the savings to the pension fund.
However, initiating a universal pension scheme for such a huge population will be a gigantic task, and efficiently running the project will need much effort.
Our government expenditure is increasing over the years though the rise in revenue generation has been less than proportionate. The government is facing challenges to continue several projects due to insufficient resources.
It will be an arduous task for the government to provide the seed fund to start the pension scheme. The government must ensure that contributing to pensions will not deter the current growth trajectory of the economy.
Secondly, managing the whole universal pension scheme will be quite challenging in the current institutional and technical setup. Recruiting appropriate consultants and a skilled workforce is very important here.
Also, creating separate bank accounts for such a large number of people and collecting participatory amounts on time will be difficult. Once collected, investing those funds in suitable schemes and maintaining that the funds are generating superior market return will be crucial.
Thirdly, good governance and accountability in every step of the project need to be ensured for successfully running the project. People will want to receive the return on investment on time and without any wrangle. As there are several instances of misappropriation in government projects, transparency in work must be ensured.
Proper monitoring and evaluation are important to reduce delinquency in the system. Again, an efficient regulatory authority and elaborate regulatory framework are required for the universal pension scheme. The 'Universal Pension Management Act' has already been drafted and a regulatory body must be engaged to operationalise the project timely and efficiently.
A number of developed countries like the Netherlands, Iceland, Denmark, Germany, Australia, Canada, and Switzerland have successfully implemented universal pension schemes.
Even our neighbouring country India has started UPS in a few states and is managing successfully. In developing countries, the pension fund is invested in various profit-generating schemes, and earnings are distributed to beneficiaries. So, the government burden is reduced and more deserving people are getting the benefit.
We are enjoying a demographic dividend in our country as the number of working people is much higher than the senior citizens. The government may consider starting the project at least in some areas on a pilot basis. If UPS can be mingled with the present tax system, it will not only accelerate the number of taxpayers but will also lighten the load on the national exchequer.
A large number of citizens from both the formal and informal sectors will come under the institutional social safety net if the universal pension scheme can be materialised. So, a well-thought-out plan and timely implementation is required to run the project successfully.
Shirin Sharmin is a researcher and serves as an Assistant Professor at the Bangladesh Institute of Governance and Management (BIGM).
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.