The government has introduced new regulations outlining stringent guidelines for the investment of pension funds by the National Pension Authority (NPA). These rules aim to optimize returns while mitigating risks, thus alleviating the burden of future repayments.
Effective immediately, pension funds will primarily be channeled into secure instruments such as treasury bonds, bills, and other government-approved securities including sukuks and mutual funds regulated by the Bangladesh Securities and Exchange Commission (BSEC). Additionally, investments will extend to fixed deposits with banks rated AA or above.
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Furthermore, the regulations strictly prohibit investments in privately owned firms or any ventures outside the country, directly or indirectly. Investment in listed A-category bonds and government-issued securities for infrastructural development is permitted, subject to a cap of 25% of the total fund size per sector, with an exception for government securities.
New Committee to Guide Pension Fund Investments
A pivotal aspect of the new framework is the establishment of a dedicated Fund Management Committee. This committee, chaired by a senior member of the NPA, will oversee investment decisions. It includes representatives from the Finance Division, at least at the level of Joint Secretary, alongside eminent figures such as the Chairman of the Finance Department at the University of Dhaka or their appointed delegate, a BSEC Director, and a representative from the Bangladesh Bank.
Fund Management Committee:
- Chair: Senior member of the National Pension Authority (NPA)
- Members:
- Representatives from the Finance Division (Joint Secretary level or higher)
- Chairman of the Finance Department, University of Dhaka, or appointed delegate
- Director from the Bangladesh Securities and Exchange Commission (BSEC)
- Representative from the Bangladesh Bank
- Secretary: General Manager of Fund Management, NPA
- Advisors: Invited experts (non-voting)
The Committee’s decisions will be guided by rigorous analysis, leveraging specialized insights from invited experts who contribute non-voting advisory perspectives. The General Manager of Fund Management at the NPA will serve as the Committee’s Secretary, ensuring operational coherence and accountability.
This regulatory overhaul, published in the official gazette, marks a significant stride towards ensuring prudent management and sustainable growth of pension funds, fostering financial stability and resilience within the sector.
The newly formed committee will play a pivotal role in steering investment strategies for pension funds by meticulously analyzing the potential and risks associated with various securities. Their primary focus will be on guiding the fund manager towards investments in low-risk, profitable sectors, and recommending strategies to enhance the business, fund, and investment size of any chosen security.
Regulatory Overhaul:
- Published in: Official Gazette
- Objective:
- Prudent management of pension funds
- Sustainable growth
- Financial stability
- Sector resilience
ADB and Government Collaborate on $325 Million Universal Pension Scheme Expansion
In a landmark initiative, the government plans to launch a project aimed at expanding and fortifying the universal pension scheme, with an estimated budget of Tk 4,000 crore (approximately $325 million). Of this amount, $250 million will be financed by the Asian Development Bank, with the remaining funds provided by the government.
Regulatory Overhaul:
Total Budget: Tk 4,000 crore (approximately $325 million)
- ADB Funding: $250 million
- Government Contribution: $75 million
The project, set to commence in November this year and conclude in June 2028, will focus on establishing the institutional framework of the pension authority, constructing necessary infrastructure, and providing training for officials. This initiative marks a significant shift from the existing unfunded pension system for public service employees to a funded system, aimed at mitigating the escalating costs of pensions. In unfunded pension plans, retirement benefits are typically paid directly from employer contributions.
Project Timeline:
- Start: November 2024
- End: June 2028
Government expenditure on pensions and gratuities has seen a dramatic increase from Tk 4,395 crore in the fiscal year 2009-10 (4.3 percent of the budget) to Tk 36,902 crore for the fiscal year 2024-25, representing 4.63 percent of the total budget, according to the finance ministry.
Despite its crucial role in ensuring social safety for the retired population, particularly in a country where only public sector employees currently enjoy such benefits, the universal pension scheme has garnered a tepid response. In response, the government is focusing on expanding its offices to increase participation.
Government Expenditure on Pensions:
- FY 2009-10: Tk 4,395 crore (4.3% of budget)
- FY 2024-25: Tk 36,902 crore (4.63% of budget)
The universal pension scheme is vital for Bangladesh, providing much-needed social security for its citizens post-retirement. To ensure its sustainability, the proposed project is essential, as highlighted in a ministry document submitted to the Planning Commission. This project not only signifies a transformative step towards a more secure retirement system but also underscores the government’s commitment to financial stability and social welfare.
Feasibility Study Underway for ADB-Funded Pension Scheme Expansion
The Asian Development Bank (ADB) has verbally committed to funding the project, which aims to integrate elderly citizens into a sustainable and organized social safety net, thereby expanding the pension scheme.
To secure the ADB’s funding and finalize the development project proposal, a comprehensive feasibility study with the development partner’s involvement is essential. Consequently, the preliminary development project proposal has been submitted to the Economic Relations Division. According to a finance ministry official, the division is currently seeking a consultant to conduct the necessary study.
The introduction of a new instrument, Prattay, aimed at including newcomers in autonomous and semi-autonomous public bodies, has sparked significant controversy, leading to university teachers staging work abstentions.
The pension authority has faced challenges in attracting clients, with total membership standing at approximately 332,773 as of June. Despite these hurdles, the government has successfully accumulated around Tk 97 crore in contributory payments, with Tk 93 crore invested in treasury bonds.
Looking forward, the government plans to conduct a feasibility study on the pension scheme, funded by the Asian Development Bank (ADB). This study is part of a proposed three-and-a-half-year project costing $325 million, aimed at bolstering the pension authority’s transition towards a contributory pension system. This initiative underscores a critical step towards establishing a robust, sustainable pension infrastructure, reflecting a steadfast commitment to long-term financial security and stability.
