Private pension shaping up
Finance Minister AMA Muhith will present a detailed outline of a private sector pension scheme in the upcoming budget with a plan to reach one lakh beneficiaries on a test case basis.
A finance ministry official said the minister wants to come up with a framework about the scheme that the government has promised earlier. The ministry has started working in full swing on the issue, he said.
The finance ministry official said the piloting will focus on three population groups: lower-income savers, voluntary savers, and private sector employees.
In the beginning, the private sector employees such as garments workers may be included in the pilot scheme.
The pension scheme for the private sector employees got a boost in 2015 when the cabinet approved the National Social Security Strategy, which contained a thorough plan with a focus on initiating a universal pension scheme.
In his budget speech in June 2016, Muhith had said the existing pension system would be reformed and an initiative would be taken to introduce a pension system in the private sector.
Two months later, the minister held a high-level meeting where a concept paper from the finance division was presented and discussed. The meeting decided that the paper will be placed with the cabinet to come up with a framework, but it has not progressed.
In January the issue was revived again when Muhith said he would give an outline in the budget but it will be implemented by the next government.
According to the finance ministry concept paper, the government plans to introduce a universal pension system for both public and private sector employees. Finance ministry sources said the government plan will only include private sector employees. Private sector employees will make a voluntary contribution to the pension fund. If a person resigns from an organisation and joins another, his contribution will be transferred.
To materialise the idea, several subsidiary institutions will be established, including pension enrolment office, pension trust, custodian, central record keeping agency, trustee bank, pension fund managers and annuity service providers.
A new pension office will be set up along with a pension cell in the finance division to prepare a revised draft law for the pension scheme. A pension authority will be formed to bring all the citizens under the scheme.
The finance ministry official said the ministry has already examined the pension systems in other countries, discussed the matter with stakeholders and made a draft proposal.
Preparatory works, including framing laws, will be done in the next fiscal year, he said.
The World Bank has informed the government about its willingness to provide financial and technical assistance for the private sector pension scheme.
The lender has committed $100 million for introducing the private sector pension scheme.
As the introduction of the scheme got delayed, $80 million has been given to the insurance sector. The remaining $20 million will be provided when the pension scheme starts functioning.
According to a WB document, low-income savers will voluntarily save and the government may provide a matching fund of 25 to 50 percent. In case of salaried workers, the staff and their employers will contribute on their own, not the government.
The WB proposal builds on the best practices from countries such as India, Malaysia, Sweden and Australia.
In particular, it uses India's experience in developing the national pension scheme.