Hassles and funding

Shamsul Huq Zahid | Published: March 09, 2016 00:31:05 | Updated: October 25, 2017 00:30:42



The story about the hassles a public servant has to encounter to get his/her retirement benefit file cleared is an old one. The situation in this area has not changed a bit even 45 years after the country's independence.
Finance Minister AMA Muhith, who was one of the top bureaucrats of the country, is, according to a report published in this paper Tuesday, willing to carry out some major reforms in the pension system with a view to reducing the pensioners' hassles.
With this end in view, an official team is likely to pay a visit to neighbouring India to see the operation of the pension systems there.
This has become more of a fashion on the part of the lawmakers and high government officials to engage themselves in 'knowledge gathering' missions abroad at the expense of taxpayers' money. Such 'knowledge' in fact is only a click away on the internet these days.  
Moreover, it is unlikely that the team of Bangladesh officials during their proposed visit would get any clue to reducing the hassles the retirees face in getting their due benefits since the situation in India is almost identical to that of Bangladesh.  
However, the team members should examine closely the Indian government's efforts to make the pension payments funded, at least, partially. This could make their proposed visit worthwhile.
The pension is paid to the public servants in India under two schemes -- the old pension scheme (OPS) and the new pension scheme (NPS).  The employees recruited before January 01, 2004 belonging to the civil departments and defence are getting pension under the old scheme that follows the pay-as-you-go (PAYG) or unfunded system.
But in the case of NPS, the public servants who are recruited after the cutoff date have been brought under what is known as the Defined Contribution (DC) system. The latter method asks the employees to save a part of their current income to earn their own retirement benefits, making it a 'funded' scheme.
The pension issue, in the context of a country like Bangladesh, has two aspects. One aspect involves the hassles a retiree faces in his/her efforts to ensure timely disbursement of one-time and monthly retirement benefits under the relevant rules. The other aspect relates to the government's job of arranging a substantial amount of funds for meeting an ever-increasing pension benefit payments.  
In the budget for the current fiscal year, Tk. 116 billion has been earmarked for payment of pension to an estimated 0.6 million beneficiaries. With the implementation of the new national pay scale, the amount would bulge further in the next financial year and the process would continue.
The expenditure that the government has to make on the payment of salaries of public servants and pension benefits constitutes a notable part of its revenue receipts, thus, affecting public investments in health, education and other important social and economic sectors.
The government here follows the PAYG system since the pension payments are entirely unfunded. What might be prompting the finance minister to initiate pension reforms is making the system 'funded' with a view to reducing the burden on the government.
However, there is downside of 'funding' the retirement benefit payments through defined contribution by the government servants.  Such contributions make the take-home-pay of the public servants lower than the actual. Such a development has the potential of working as a disincentive for talented people to join the government services.
The finance minister, on a couple of occasions, in the recent past had spoken about introducing pension schemes for the private sector workforce. But nothing has progressed since then.
The average private sector wages, barring a few high positions, are now marginally higher than those of the public sector. But pension benefits make the public sector jobs far more lucrative than the private ones.
Scores of young talented graduates are joining the private sector firms that have been offering attractive pay packages. But the private firms do not have any pension benefit plans for their employees that often give rise to a sense of financial insecurity in the long run among the private sector workforce.
The government does need to seriously consider introducing 'funded' pension scheme for the private sector. The scheme could be based on the principles followed in the contributory provident fund. However, things would not be as easy as the case is with the government, the largest employer in the country. Lots of issues would have to be examined and addressed prior to making a final decision. Hopefully, the finance minister would do all the needful to benefit millions of private sector workforce.
zahidmar10@gmail.com 

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