Bangladesh as a state is mandated to ensure ‘the right to social security’ according to article 15 of the country’s constitution. The Universal Pension Scheme is committed towards providing social security throughout the entire lifecycle of its citizens - from birth to death - and leaves no one behind.
To achieve such aspiration as a resource-constrained developing nation, the Government of Bangladesh (GoB) is administering more than 140 social safety net programmes to ameliorate the sufferings of many underserved segments of the population including but not limited to chronic & transient poor, women, students, people with disability, minority groups such as transgenders and bede community.
Increase in Life Expectancy
Due to improved health care, food security and other social-economic factors, Bangladesh has experienced a rise in longevity. The current average life expectancy in Bangladesh is 72.3 years which is expected to ascend over the years.
Rising Elderly Demographic
Bangladesh has a huge demographic dividend as the working age individuals consist of 65.5% of the total population. The country has a relatively younger demography with an average age of only 26 years. However, the aging population of the country is rapidly growing at the same time. According to the latest population census, the proportion of elderly population has increased from 7.47% in 2011 to 9.29% in 2022. According to the Bangladesh Bureau of Statistics (BBS), the senior citizens will make up 20% of our total population by 2031.
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This ascending trend of both life expectancy and aging population is expected to increase the dependency ratio of the elderly in the upcoming years.
Lack of Sustainable Old Age Support Mechanisms
fter retirement, the seniors of each family lived in extended families where other family members supported them financially. However, from the 1990s, the rate of breaking down of extended families to nuclear families has increased two times higher. The elderly, once a strong driving force both for their family and the country, are often perceived as a burden by their family members as well as the society. Previously, only around 2 million government employees, both civil and military, were entitled to receive pension. Individuals above the age of 60 who were employed by the government for 25 years receive a pension at rate based on their last drawn salary amount. Some private and autonomous organizations offer the option of provident fund and gratuity which is still very limited. This means the large share of our elderly population don’t have adequate access to finance after their retirement as no pension schemes weren’t available for them.
Till now, the only form of support they received from the government is through the “Old Age Allowance” – a direct cash transfer social safety net programme. This impoverished aged community receives BDT 500 (Around 5 USD) each month. In 2018, 4.4 million senior citizens received direct cash transfers. The number has ascended to 5.7 million who received around BDT 3444.54 crore in FY 2021-22. Hence, till now, the majority of the elderly population did not have any sustainable old age support mechanism that will at least adequately satiate their financial needs.
Universal Pension Scheme
To tackle these issues and uplift the senior citizens of Bangladesh, the Government of Bangladesh (GoB) has introduced the Universal Pension Scheme (UPS). The Constitution of Bangladesh in Part II, Section 15 (d) guarantees the rights of the old age population to get public assistance. Before the 2018 national polls, Sheikh Hasina-led Awami League pledged to provide UPS in its election manifesto. The Seventh Five-Year Plan (7FYP) and the National Social Security Strategy (NSSS) 2015 outlined the UPS before. On January 24, 2023, the Bangladesh Parliament passed the Universal Pension Management Bill 2022. And on August 17, 2023, Prime Minister Sheikh Hasina unveiled the Universal Pension Scheme in which all Bangladeshi citizens aged between 18 and 50 years including the expatriates will be able to receive a monthly pension once they reach the age of 60. The UPS is aimed to ease the life of the senior citizens by enabling them to cope with disease, disability or old-age or senile complications, fallout of unemployment or poverty.
National Pension Authority (NPA)
The National Pension Authority has been formed to run the Universal Pension Scheme. A 5-member committee will be formed to operate the scheme and a 15-members board of directors will have the authority to run UPS.
Fixed Amount of Premium
In order to access UPS, citizens have to pay a fixed amount of premium for at least 10 years based on their socio-economic status and capacity. Upon reaching the age of 60, the pension will commence, allowing the elderly to reap the benefits of UPS till their last breath.
Age Limit Consideration
Under special consideration, individuals above the age of 50 will also get the opportunity to participate in UPS. However, they will be required to pay the premium for the following 10 years from the date of joining the scheme.
Beneficiary Passing Away
In the event that a recipient passes away prior to reaching 75 years of age, their chosen nominee will receive the monthly pension for the duration remaining until the deceased individual would have turned 75.
In the scenario where the beneficiary dies prior to completing at least 10 years of premium payments, the nominee will be entitled to receive both the deposited sum and the accrued interest on that pension account.
Retrieving Loan
If a beneficiary chooses to withdraw their deposited funds at any stage, they have the option to retrieve up to 50% of the total amount as a loan. This loan sum must be reimbursed along with the stipulated fee. This loan can be utilized for personal needs such as medical treatment, housing construction, home repairs, and financing a child’s marriage. The loan amount must be rapid through 24 installments, encompassing the charges imposed by the pension authority.
Tax Implications
The deposited premium will be treated as an investment and will be granted tax exemption. Similarly, the pension payments will also be exempted from taxation.
Pension Schemes/Packages
The Prime Minister has initially launched 4 pension packages out of 6: Progoti, Shurukkha, Probash, and Shomota. The UPS is a blend or combination of both contributory and non-contributory pension schemes. Among the 4 announced packages, 3 packages are entirely contributory whereas only Somota has elements of non-contributory pension scheme.
Progoti (Private Employees/Institutions)
Progoti is targeted to formal private sector employees. This pension package aims to include the private sector employers in the scene as the employers will have to contribute 50% of their employees’ monthly contribution. The National Pension Authority (NPA) is contemplating an amendment of existing labor laws to mandate private sector employers to participate in the UPS which will be compulsory. However, if any private company does not want to join the UPS, employees can individually apply to access UPS.
There are 3 monthly contribution or installment options under Progoti- BDT 2,000, BDT 3,000, and BDT 5,000. The beneficiary will receive a pension of BDT 3,060 each month against a monthly contribution of BDT 2,000 for 10 years. If an individual employed in the private sector joins the UPS at the age of 18 and pays an installment of BDT 2,000 per month for 42 years, they will receive BDT 68,931 every month at the age of 60.
Surokkha (Self-Employed & Non-Institutional Workers)
The labor market of Bangladesh is predominantly of informal nature. Individuals working in the informal sector such as rickshaw pullers, farmers, potters, blacksmiths, fishers, weavers and labourers fail to save for their future and consequently, suffer in their 60s. The Surokkha scheme targets this group employed in the informal sector so that they can remain financially solvent and satiate their necessities at a senile age.
Under the Surokkha scheme, the monthly installments options will be BDT 1,000, BDT 2,000, BDT 3,000 and BDT 5,000. The depositors will receive BDT 1,530 per month as pension against the payment of Tk 1,000 a month for 10 years. Those who will continue the scheme after providing BDT 1,000 per month will get BDT 34,465 as a pension per month.
Probash (Expatriates)
According to the World Migration Report 2022, Bangladesh has the world’s fourth largest diaspora, with around 13 million people residing outside the country. The Probash package is for expatriate Bangladeshis who can contribute in foreign currency by utilizing the available installments options of BDT 5,000, BDT 7,500, and BDT 10,000. In return, the individual will receive a monthly pension of BDT 7,651, BDT 11,477 and BDT 15,302 respectively after the completion of 10 years. After returning to Bangladesh, they can either sustain their participation in the package by making a contribution in Taka or transition to a different package. However, their pension payments will be disbursed in taka.
Somota (Low-Income People)
According to World Bank data, the poverty rate (percentage of people earning less than USD 2.15/day) in Bangladesh has significantly declined since 2000. The poverty rate has declined from 33.7% in 2000 to 10.44% in 2022. Despite the reduction in poverty rate, it’s pivotal to include the most vulnerable scheme under the pension scheme to ease their lives filled with suffering in their 60s.
Thus, the GoB has launched the Somota scheme which is uniquely designed for the ultra-poor with a mixture of contributory and non-contributory pension method. The monthly installement for Somota is BDT 1,000. The contribution payment will be divided among the government and beneficiary as the individual will contribute BDT 500 and the rest, BDT 500 will be paid by the government. If a low-income individual joins the scheme at the age of 18 and provides a contribution of BDT 500 each month, they will receive BDT 34,465 every month in their 60s.
Individuals who currently earn below BDT 60,000 a year will be able to access this scheme. The individuals who will be able to access this package will be determined by the income limit published by the Bangladesh Bureau of Statistics.
Somewhat similar schemes like Somota are the “Mukhyamantri Vridhjan Pension Yojna” in India, and “Renta Dignidad” in Bolivia.
Delivering Pension through Tech
Bangladesh has been able to successfully implement the G2P (Goverment to Person) payment system to address the pain points of the beneficiaries of the social safety net programmes. Now, beneficiaries receive their cash allowances under various safety net programmes through the Mobile Financial Service (MFS) providers. G2P will also power the entire delivery chain of the Universal Pension Scheme.
Onboarding | Stage #1
The first step of UPS is onboarding the beneficiaries. The National Pension Authority has launched the web portal: upension.gov.bd so that Bangladeshi citizens all across the globe can register online without taking the hassle of long queues at government offices or possible instances of bribes. Hence, completely eliminating the bureaucratic red tape. Expatriate Bangladeshis who do not have a national identity card (NID) can use their passport information instead to join the scheme.
The mobile number provided in the application and, in the case of the expatriate applicants, the email address will be used to communicate the unique ID number, donation rate and the monthly donation submission date. The NPA has also developed a mobile app to ease the process of joining and completely digitalizing the pension scheme. The Union Digital Centers will help the rural people with the registration process to ensure maximum coverage of the pension scheme.
Deposit Installment | Stage #2
Beneficiaries can visit any branch of scheduled banks and deposit through Over the Counter (OTC) method. Initially, Sonali Bank will receive contributions. However, the long queues in banks may not incentivize the citizens to join the scheme. Hence, the government has digitized the process of monthly installments through MFS, online banking or credit or debit card. Expatriate Bangladeshis can deposit installments through their credit and debit cards.
Upon depositing the monthly installment into the designated National Pension Authority bank account, a text will be sent to the registered mobile number. In instances of installment payment lapses or failures, depositors will receive notification of the shortfall along with details of the corresponding fine amount.
Disbursement | Stage #3
Funds will be transferred through an electronic fund transfer system. To facilitate this process, a centralized and automated pension disbursement system wlll be developed.
FUND MANAGEMENT
The National Pension Authority (NPA) is aiming to invest the premium contributed by the UPS subscribers into treasury bills, bonds, stable financial institutions and promising infrastructure projects. The authority is considering lucrative ventures as viable avenues for gaining profitable returns on investments.
ECONOMICS OF UPS
The UPS is not heavily dependent on the tax or revenue collected by the government as it is largely contributory. Pragati, Samata, and Prabashi are basically contributory schemes, as the government would not share the subscription fees of those schemes. In other words, the administrative costs and the pension payments are not coming directly from the government but through the returns generated by the funds in the market. Therefore, the risks of the government failing to provide the monthly pension due to the government’s financial insolvency is significantly lower unless the market conditions are horrible or the economy is going through depression or downturn.
More importantly, the UPS has the potential to revive the Bangladeshi markets as a huge amount of money will flow from the citizens directly to the market. Since the NPA will be investing the money in financial markets or profitable projects, it will boost the markets and increase income-generating activities in the economy.
Additionally, most Bangladeshis do not have adequate sustainable investment options which expose them to risky, wishy washy pyramid schemes. Through UPS, Bangladeshis will be able to invest in their future to better protect themselves from any future risks at their most vulnerable period of life.
Expectations from the Government
There are instances of lack of accountability, poor governance and misappropriation of resources in Bangladesh which is a serious concern for the participants of the UPS. Before introducing the G2P payment system, the social safety net programmes were also exposed to leakages and suffered due to mistargeting the beneficiaries and rent-seeking behavior.
Recommendations
- The NPA has to deploy effective monitoring and oversight mechanisms to prevent corruption, leakages and wastage.
- The overhead administrative and fund management costs should be kept within acceptable limits.
- Information regarding how and where the pension fund will be invested should be made publicly available. Sending beneficiaries regular statements with updates on their pension account will help to ensure transparency.
- The National Savings Certificate in Bangladesh has been immensely successful which has been able to garner confidence of the citizens. Lessons and inspirations can be drawn from the operation and management of the savings certificate and can potentially be replicated in the pension scheme.
- A Central Grievance Redressal System should be put in place and made available on the website/app to receive or respond to the complaints from all the participants of the UPS.
- Protecting the data and privacy of the UPS subscribers is an important concern for which effective measures should be deployed to increase data privacy and security.
Even though Bangladesh has a scarcity of less risky investment options, so many financial instruments, industries and projects are displaying huge potential. A recent HSBC report showcases that Bangladeshi stocks have potential like India, Vietnam. Earnings are set to grow 20% in the next three years according to the report.
Recommendations
- The pension funds should be channelized to profitable projects and financial instruments that would make the pension scheme a sustainable venture.
Individuals working in the informal sector are scattered across the country which makes it extremely difficult to reach those people and ensure maximum coverage of the UPS. Especially, these individuals often cater to their short term needs and fail to save for their long-term well-being. They spend their entire income on daily necessities.
Recommendations
- Massive public awareness campaign must be conducted to increase the subscription of UPS.
- Increasing financial literacy will be instrumental for the success of the pension scheme as the country has a huge unbanked population.
- An effective means testing has to be deployed to effectively target the beneficiaries, especially for Somota.
- Some form of incentive packages can be offered to private sector employers to increase private sector involvement in the scheme.
About the Author
Shah Adaan Uzzaman is the Blog Administrator at The Confluence. A former Bangladesh Television Debate Champion and winner of several policy & debate competitions, he is currently a student of IBA, University of Dhaka.