The Financial Express

Civil admin the leviathan-IV

No funded facility as pension liabilities keep galloping

Jasim Uddin Haroon | Published: August 21, 2019 09:59:20 | Updated: August 21, 2019 16:14:04

Picture used for illustrative purpose only — Collected Picture used for illustrative purpose only — Collected

The government's liabilities on account of pension for retiring officials are increasing due to having a much higher number of people than required in the top tier of the civil administration, people familiar with the matter have told the FE.

A higher number of high ranking officials mean higher salaries and the pension of an employee is calculated on the basis of the last-drawn basic salary. If the last-drawn basic salary is high, the monthly pension amount also goes up.

For example, if an officer retires at the grade-I, he will get monthly pension Tk 37600, excluding festival allowances.

But currently the highest monthly pension for a person is Tk 70,200 for some posts against the earlier amount of Tk 40,500, according to official documents.

Experts say the government's liabilities on account of pension and pension-related obligations will rise significantly, leaving its impact on the fiscal management.

The government expenditure to meet pension and related matters increased by approximately Tk 44.5 billion over the past four years to the fiscal year 2018-19, official data showed.

The Finance Division does not conduct any "actuarial valuation" to predict the future liabilities. It just allocates a portion of the budget to meet the yearly pension liabilities. Sometimes it matches the requirement and sometimes does not, leading to borrowing from banking and other sources.

Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), said the future liabilities to meet the pension payment requirements would be "huge."

He said the country's pension payment is not funded and that's why the risk is high.

Currently, Bangladesh follows the 'pay-as-you-go pension plan' (PAYG) instead of the 'funded pension' system.

The PAYG means when the retirement age comes, the pensioners choose either to receive the benefits in a lump sum or as a lifetime annuity in which the benefits are paid in monthly installments throughout the beneficiary's lifetime.

This is different from a fully-funded pension system where the company or government fully funds or contributes equally with the employees and then manages and distributes the benefits at retirement.

Dr Mansur, however, said: "If anyone gets promotion, his salary goes up and he enjoys lifetime benefits, even his under-aged children also enjoy the benefits."

The situation may worsen as the people's life expectancy is increasing. It is now over 72 years, around 20 years higher than in 1980s.

Dr Mansur said the rise in the number of ageing people in society would just help inflate the fiscal burden on the government.

"If life expectancy becomes higher, the government will have to pay more monthly pensions along with other festival and medical allowances," he commented.

The government now has opened a central pension office to reduce the hassles.

It said the volume of pension amount was merely Tk 71 billion in 2015. It sharply increased to Tk 102.84 billion in 2016. The existing pension payout is estimated to be more than Tk 260 billion, twice the size of that in the fiscal year 2018.

Senior officials at the office told the FE that expenditure on account of pension payments shot up following some changes made in the employees' benefits.

Dr Zahid Hussain, an economist, said pension 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.

The pension office said pension payments have been increasing in recent years following a change in retirement-benefit calculation.

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

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

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

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

Pension is granted to a government servant on his/her retirement from the public service based on the length of 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 the latest documents available with the Comptroller and Auditor General (CAG) of Bangladesh.

However, the number of pensioners stood at 692,515 at the end of 2018, up by approximately 19,000 from that of 2017.

The government expenditure to meet pension and its related outlays stood at Tk 148.95 billion at the end of June, 2019, up by nearly Tk 2.0 billion from that of 2017-18.

The pension-related payments were Tk 104.52 billion in 2015-16 fiscal year, according to finance division.




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