After years of discussions, Bangladesh has finally passed the Universal Pension Management Bill, 2023, on January 24, paving the way for the implementation of a universal pension system in the country, which marks a significant step towards providing financial security to Bangladesh’s elderly population.
The Universal Pension Management Bill, 2023, states that every citizen aged 60 or above will receive a monthly pension of Tk 34,000. The new system aims to provide financial security to the elderly population and protect them from unemployment, illness, paralysis, or poverty.
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According to the bill, “Every citizen at the age of 60 will get Tk 34,000 monthly, after monthly deposit of Tk 500 from the age between 18 and 50 and when they deposit Tk 1000 will get monthly Tk 64,000.” Expatriate Bangladeshis can also avail themselves of the pension scheme by paying premiums for at least 10 years. In the event of an elderly person’s death before the age of 75, the nominee will receive the remaining pension amount.
As government, semi-government, and autonomous organization employees currently enjoy pension benefits, they will be excluded from the universal pension system initially. However, these entities can choose to participate in the public pension scheme with contributions determined by the National Pension Authority.
Government to pilot universal pension system in July
The introduction of a universal pension system aligns with the promises made by Awami League President Sheikh Hasina in her election manifesto and the outline provided by the late Finance Minister Abul Maal Abdul Muhith. While the timeframe for mandatory implementation before 2028 may not be realistic, the government aims to develop comprehensive programs catering to expatriates, private institutional employees, the working class, non-institutional individuals, the social security program population, and students.
The government of Bangladesh is set to pilot a universal pension system starting from July. The officials stated that the government is eager to implement the universal pension system prior to the forthcoming general election slated for this December or January next year, demonstrating its commitment to supporting the welfare of its citizens. “As part of that plan, the finance ministry has decided to launch the pilot program in July despite a lack of necessary preparations,” they added.
International Examples of Pension Systems
Different countries have implemented various types of pension systems to ensure financial security for their elderly population. In worldwide, mostly four types of pension systems are implemented: Unfunded, Funded, Defined Benefits (DB), and Defined Contributions (DC). An unfunded pension system does not involve any fund creation as employees are not required to contribute to it. Funded pensions, on the other hand, involve contributions from either the employee, the organization, or both. The DB system is typically applicable to government employees, while the DC system involves employees or organizations depositing money into a fund, from which expenses are incurred.
In certain countries, pension systems are also operated through insurance companies.
India: India’s National Pension System (NPS) was implemented in 2004 for central government employees and later expanded to cover all citizens between 18 and 60 years old. It involves fixed contributions from individuals, employers, or the government, which are invested for future returns. At retirement age, individuals can withdraw 60% of the accumulated funds as a lump sum and receive the remaining 40% as regular pension payments. The NPS has undergone developments such as the inclusion of private corporate employees and the establishment of the Pension Fund Regulatory and Development Authority (PFRDA). India also offers a social pension system for specific vulnerable groups.
China: China has three pension systems to cater to its working population, as stated in the Ministry of Finance strategy paper. The Urban Pension System (UPS) is designed for individuals working in cities, while the Civil and Public Service Pension System (CPSPS) is specifically for government and semi-government employees. For those engaged in private employment in villages, the Rural Pension System (RPS) is in place.
United Kingdom: The UK has four pension systems: state, occupational, private, and unfunded. The state pension comprises components such as state retirement allowance, supplementary pension, and pension credit. Occupational pensions involve contributions from both employees and the government or company, while private pensions are administered through insurance companies.
United States: In the United States, pension systems include state social security, employment-based pensions, unfunded pensions, and private pensions. The majority of working individuals are covered by the state social security system, funded through taxes and trust fund investments. Employment-based pensions involve contributions from both employees and employers.
Moreover,developed countries like Australia, New Zealand, Japan, Hong Kong, Korea, and Taiwan have comprehensive pension systems funded through their respective budgets. Meanwhile, countries like Thailand, Singapore, and Vietnam are undergoing pension system reforms, and the Philippines, Myanmar, Malaysia, and Indonesia have implemented participatory pension systems.
Universal pension to be mandatory after 2028
Although the universal pension scheme is being announced and a pilot project is about to start in July, making it mandatory will require at least time till 2028. The government has planned to establish the National Pension Authority to oversee the implementation of the universal pension scheme. However, as of now, the authority has not been constituted, and the formation of the board of directors is pending. Additionally, rules regarding funding and program details need to be developed and eligible and efficient human resources are also required.
The implementation of the universal pension system poses challenges, including the complexity of designing and managing multiple programs, the need for an office space for the National Pension Authority, and the absence of a budget allocation for the next financial year. It is unlikely that the universal pension will become mandatory before 2028, and until then, participation will be voluntary unless mandated by the government. The objective is to ensure that the working population exceeds the elderly population, making it an opportune time to introduce the system.
While, the universal pension scheme will take a while before citizens can finally avail the benefits, the initiation of the system reflects the government’s commitment to addressing the needs of the elderly population and ensuring their well-being.