Universal pension from July, monthly contribution Tk500-5000

Infographic: TBS

The government is set to launch the universal pension scheme nationwide in July, with individual contributions ranging from a minimum of Tk500 to a maximum of Tk5,000 per month.

Individuals aged above 50 will also be able to join the scheme, but to be eligible for the pension, they will need to make contributions for 10 years, according to finance ministry officials.

The scheme will initially target four categories – private sector employees, non-resident Bangladeshis, individuals from the informal sector, and insolvent individuals.

According to the officials, individuals living below the poverty line will be classified as insolvent and the finance ministry is currently analysing the methods for identifying them. Government beneficiaries who are very poor may also be included in this category. And their monthly contribution is likely to be set at Tk500.

Individuals from various professions, such as rickshaw pullers, domestic workers, street vendors, and hawkers, will be included in the informal sector.

The contribution for non-resident Bangladeshis and individuals from the informal sector will range from a minimum of Tk500 to a maximum of Tk5,000 per month.

The monthly contribution for private sector employees is likely to be set from a minimum of Tk1,000 to a maximum of Tk5,000.

The government will contribute 50% to the monthly deposits of the insolvent individuals and will have no contribution towards the rest.
Pension scheme-holders will receive interest from the government against their contribution.

Although the rate of interest has not yet been finalised, officials said the rate would be higher than that for bank deposits but slightly lower than the prevailing interest rate on savings certificates.

Finance ministry officials said the ministry is working on setting the interest rate. Also, it is being reviewed separately with chartered accounting firms. They said the interest rate would be finalised very soon.

The scheme covers individuals aged 18-50 years and above. The relevant law excluded people over 50, but later they were brought under the scheme with conditions by formulating rules.

According to the rules, individuals above 50 years will not receive pension benefits from the age of 60 like others. Instead, they will begin receiving a lifetime pension after contributing for 10 years. In other words, if someone joins the scheme at the age of 60, they will start receiving pension benefits at the age of 70 after making 10 years of contributions.

The officials said preparations are underway to launch the scheme on the first day of the new fiscal year.

Prime Minister Sheikh Hasina will inaugurate the universal pension, and the finance ministry has already requested her schedule for this. Once she confirms the timing, the universal pension scheme will be officially launched nationwide.

Finance ministry officials said this comprehensive pension scheme aims at providing financial security to a wide range of people, promoting social welfare, and ensuring economic stability.

"There is no piloting of the universal pension; it will start in full swing across the country from the day the prime minister inaugurates it. The premier will announce its launch by including two to three insolvent individuals and some people for other products in the inauguration ceremony by incorporating them into the scheme," said an official involved in the process.

About bringing people above 50 years under the scheme, a finance ministry official said, "Recommendations to include senior citizens keep coming from various levels. In view of that, provisions are being made to include those over 50 years of age in the universal pension rules. However, the senior citizens will get pension benefits after contributing for 10 years."

Those who will be included in the universal pension will initially only deposit the contribution in the state-owned Sonali Bank. For this reason, the pension authority, Finance Division, and Sonali Bank have finalised the preparation of signing a memorandum of understanding this month. Later, other banks will join this system.

In the beginning, strong efforts will be made by the government to increase the inclusion of expatriates in the universal pension scheme. The finance ministry hopes that the ongoing dollar crisis will ease if expatriates contribute foreign currency from abroad.

In the other three products, participants will contribute Bangladeshi currency, which the government will invest in profitable projects. The officials expect that the government's dependence on bank loans will be greatly reduced in the coming years.

They said the government will only receive money for universal pension contributions for the first 10 years and will not have to pay any money for this period. After 10 years, the money will start to be spent on pensions.

Ahsan H Mansoor, executive director of the Policy Research Institute, told The Business Standard, "The government will definitely have an opportunity to use money easily if the universal pension scheme is introduced. Because this scheme has the potential to accumulate a lot of money.

"But that won't happen in a year or two. It will take three to five years for the scheme to take shape. Once this scheme is started, the accumulated money should be invested for the long term. In that case, government bonds can be one of the means of investment."

The economist said the government can take the money through bonds to carry out various development activities. But it also has its risks. For this, it is necessary to set up the institution at the beginning, make strict rules and regulations. So that there is no misuse or wastage of the money deposited in the pension fund.

Md Habibur Rahman, chief economist of the Bangladesh Bank, told TBS, "A large amount of money will be deposited in the universal pension scheme at one time. The government can borrow from there. It will make the investment of pension funds easier, as well as the demand for government loans from the banking system will decrease."

He said, once the government wanted to borrow from savings instruments, people bought savings tools much more than that. As a result, the government borrows less from the banking system.

Universal pension funds will have a positive impact on development activities and currency markets, he added.

Finance ministry officials said that universal pension products have been developed for government employees and those working in autonomous institutions. The government is not launching these two products for now. Because government employees are currently getting pensions from the government, and the officers and employees of autonomous institutions and state-owned companies are getting gratuities and other benefits,

Finance Division officials said the universal pension is being introduced in such a way that even after joining, citizens can change the product or scheme if they want to. That is, after an expatriate joins by subscribing at the rate of Tk500, they can increase the subscription rate if they are interested later, and they can switch to private sector or informal sector products once they return home.

And individuals joining the scheme under the insolvent category can switch from both products and contributions once their financial condition improves.

The officials said during the inauguration of the universal pension in July, the finance ministry will announce when the two products will be introduced for the government employees and the employees of autonomous institutions and state-owned companies.

From that time on, those who enter government service or take jobs in autonomous or state-owned companies, will not be given pension benefits from the government. Those who joined the service since then will be included in the scheme like others and will receive pensions under the universal pension scheme.

Asked from which year the government employees will be included in the universal pension scheme, the officials did not give specific information. They said it will be finalised as per instructions from the highest levels of government. However, it may be fixed in 2031 or thereabouts.

The Ministry of Finance will appoint the authority chairman before next July for the smooth management of the universal pension programme. If it is not possible to appoint a chairman within this period, then an additional secretary of the finance ministry will act as acting chairman.

The Universal Pension Authority will sign memoranda of understanding (MoU) with various state agencies to introduce universal pension.

The draft of the MoU has already been finalised. A committee headed by an additional secretary from the finance ministry has been set up to sign these MoUs and speed up the functioning of the pension authority.

The Finance Division and the Pension Authority will also sign a MoU with the Bangladesh Bank to ensure timely deposit of pension contributions deposited in the bank into the government treasury.

Besides, an MoU will also be signed with the Election Commission and the Birth and Death Registration Authority. Citizens' information is stored in these two organisations. This MoU will be done to facilitate verification of various information, including age.

Besides, the Finance Division is preparing to sign a memorandum of understanding with the passport department so that expatriates can easily be included in this pension scheme.