Originally posted in The Business Standard on 11 August 2023
Universal Pension Scheme: Rushed or timely?
This ambitious plan raises questions about its viability and the strategies the government will employ to ensure its success. The Business Standard has spoken to experts to gain deeper insights into this matter
The government is poised to introduce the Universal Pension Scheme (UPS) on August 17, with the goal of creating a sustainable social security network for senior citizens in the private, informal, and expatriate sectors, as well as for those facing financial hardship. Under this scheme, participants are promised benefits that are 12 times the sum of their contributions over a span of 42 years.
This ambitious plan raises questions about its viability and the strategies the government will employ to ensure its success. The Business Standard has spoken to experts to gain deeper insights into this matter.
‘A pilot project would have helped’
Dr Fahmida Khatun
Executive Director, Centre for Policy Dialogue (CPD)
As I have said earlier, in the face of increased government expenditure and a very limited fiscal space due to extremely low revenue collection effort, implementing the UPS will be a challenging task. Since nothing has changed much since then, it still remains a challenge.
And the government having to pay up after a while is not the only concern here. Studies and reports reveal that collecting pensions is not a very simple process. People who are part of existing pension schemes frequently complain of harassment. So, the payment process needs to be smooth and hassle-free.
As far as I am aware, no pilot project has been conducted to test the feasibility of this scheme. A pilot project would have helped us understand the inner workings of the project better.
Another issue is the Somota scheme for the very poor. In this scheme, with a subscription rate of Tk1,000 per month, the contributor pays Tk500, while the government covers the remaining Tk500. For the ultra-poor, even Tk500 might be hard to procure. This might prove to be a problem.
At the moment, the low fixed income group, as well as the poor and the ultra-poor, are feeling the inflationary pressure, so they will struggle with this subscription rate.
One question that has not been answered is, what will happen if someone misses a monthly payment? Will they have to pay a fine next month? What will happen if someone wants to pull out also remains unclear.
The fact that people will have to go to the bank to make their monthly contribution can be an issue, especially for the unbanked. Also, the fact that people have to register through an app will be an issue for the elderly, especially the rural elderly.
Officials of the Ministry of Finance say that the implementation of the Universal Pension Scheme will create an opportunity to gradually reduce the number of beneficiaries of the existing social security programme, but social security programmes usually pay people allowances or school stipends. People who qualify for this will find it difficult to pay the minimum monthly premium, so I don’t think the Universal Pension Scheme will significantly reduce the number of beneficiaries of the existing social security programme. In fact, we need to spend more on social safety nets.