The Financial Express
Swasti Lankabangla Swasti Lankabangla

Pension payments to double next fiscal

Govt to meet Tk 260 billion obligation for retirees

| Updated: June 13, 2018 10:01:26

Internet photo used for illustrative purpose only Internet photo used for illustrative purpose only

The country's pension payment is expected to double in the next fiscal year (FY), the latest budget documents show.

The payout is estimated to be over Tk 260 billion, twice the size of the 2018 fiscal year's.

Officials familiar with the situation told the FE the civil servants of 1984 and 1985 batches will go into retirement in the FY 2018-2019.

This will increase the payments, they said.

The officials also said the pension system has now been centralised leading to the rise in amount of payments.

Pension payments have been increasing in recent years following a change in retirement-benefit calculation, making the public exchequer bear higher contingent liability.

The retirement benefits were given to the retired employees in line with the national pay scale of 2015.

Economists said that a "funded pension" system could be beneficial to both the government and its employees.

Currently, Bangladesh follows "pay as you go financing" method instead of the "funded pension" system.

People familiar with the matter told the FE that the rise in the number of ageing people and pensioners will only inflate the fiscal burden of the government.

The economists noted that the risk related to future financing would be largely minimised if the existing method of pension could be converted into a fully-funded one.

The government payments for pension in the fiscal year 2016 reached Tk 102.84 billion.

But it was only Tk 71.29 billion a year ago.

Senior officials at the Controller General of Accounts told the FE that expenditures on account of pension payments shot up following some changes made in the employees' benefits.

Dr Zahid Hussain, lead economist at the World Bank in Dhaka, said this is a contingent liability that the government cannot avoid.

"This is non-discretionary revenue expenditure. And the government is committed here to paying [to the pensioners]," Dr Hussain told the FE.

He, however, questioned: "Will the government be able to spend the amount?"

Since the estimate is not based on the actuarial valuations, the economists have valid grounds to be sceptical about the government's ability to spend such a large amount of allocation.

Only actuaries could predict the pension liabilities as they calculate it on some actuarial assumptions.

They also use proper method of calculating the liabilities according to the international accounting standards.

"I've doubt over the estimation. The government allocated a substantial amount in the outgoing fiscal year, but at the end of the year, they are likely to spend much lower than the earlier estimation."

Dr Hussain said if there were funded system of pension payments, the future earnings and benefits could be estimated.

Many governments, including the United States, use trust funds for their pension programmes.

The calculation of such funds enables the policymakers to know whether their pension system has long-term unfunded liabilities.

With pension payments are rising and Bangladeshis living longer, there should be a system of pension from where the employees would be eligible to draw money after reaching a certain age, even before retirement.

However, the government relaxed the eligibility criterion to 05 years to 25 years.

Earlier, it was 10 to 25 years of services in government jobs.

Pension is granted to a government servant on his/her retirement from the public service on the basis of length of qualifying service rendered and the amount of emoluments last drawn.

The rate of pension has now been extended to 90 per cent from the previous 80 per cent, according to CAG's latest documents.


Share if you like