PM launches Pension Scheme Thursday

The much-awaited Universal Pension Scheme gets going Thursday to bring Bangladesh's growing elderly population under a sustainable social-security system, with state exchequer paying half of poor's premium.
Prime Minister Sheikh Hasina would inaugurate the scheme virtually from her official residence Ganabhaban. She would also remain connected simultaneously with Gopalganj, Bagerhat and Rangpur districts and Bangladesh consulate-general office in Jeddah, Saudi Arabia, officials said.
There will be four different schemes-Probash, Pragati, Surokkha, and Samata-under the Universal Pension Scheme.
Any Bangladeshi national aged between 18 and 50 years, having national identity cards, are eligible to participate in this pension scheme and get pension monthly when they attain 60 years of age.
However, people aged over 50 also can participate in the scheme but they will be eligible to receive pension unto death only after providing premium for at least 10 years uninterruptedly.
Non-resident Bangladeshi citizens will enlist under Probas Scheme and pay premium in foreign currencies. When they return home, they can make the contribution in local currency and have option to change the scheme, if needed.
The Pragati scheme is for employees of private-sector companies whose owners can enlist the employees in the pension scheme. In this case the company can pay half the contribution while the employee will pay the rest. If the company does not want to get enlisted with the scheme, the employees themselves will be able to join the pension scheme on their own.
Surokkha is the third scheme, meant for people employed in the informal sector or engaged in self-employment, like farmers, rickshaw-pullers, labourers, blacksmiths, potters, fishermen, and weavers.
People who live below the poverty line, with annual income not higher than Tk 60,000, are entitled to get enlisted under the Samata scheme of the universal pension system. Samata scheme-holders will pay half the premium while the government will contribute the rest considering their inability to pay.
People under social-safety net will be able to participate in the pension scheme designated for them but they will have to surrender the facilities they enjoy under the safety recipe, says a gazette notification on the Universal Pension Schemed rules, published on Sunday.
Each pension scheme-holder will get a unique identification number after they fill in a form online and submit application. The scheme-holder will be informed about the amount of monthly contribution and the date of contribution through sending short message on their cell-phone number, and in case of non-resident Bangladeshis, into their e-mail addresses.
The scheme-holder will deposit the monthly premium through mobile financial service, online banking, credit card or debit card, and over the counter of designated scheduled banks.
"If anyone fails to deposit premium in time, they will be able to make the payment over the next one month without any fines. However, they will be allowed to deposit the premium thereafter but be fined 1.0 per cent for each additional day," says the notification.
In case of failure to deposit premium for a period of three months in a row, their pension accounts will be suspended and would not be reactivated until depositing the whole arrears with applicable fines. Scheme-holders, however, will be able to deposit contributions in advance in any amount.
The minimum monthly contribution for Probas scheme is Tk 5,000 and the upper limit is Tk 10,000. By depositing Tk 5,000 each month for 10 years a Probas scheme-holder will get monthly pension of Tk 7,651 while for depositing the same for 42 years they can get a pension of Tk 172,327 per month.
If they contribute Tk 10,000 per month for 10 years, they will get Tk 15, 302 each month as pension. For contributing the same amount per month for 42 years, they will get Tk 344,655 as monthly pension when they reach the age of 60.
The Pragati scheme-holders will get up to Tk 68,931 as monthly pension by depositing Tk 2,000 per month for 42 years. Those who deposit Tk 3,000 per month will get Tk 103,396 as monthly pension after 42 years and Tk 4,591 per month for depositing money for 10 years. By depositing Tk 5,000 per month for 10 years they can get Tk 7,651 as monthly pension and Tk 172,327 per month in case of deposits contribution for 42 years.
Surokkha scheme brings as low as Tk 1,530 as monthly pension by depositing Tk 1,000 per month for 10 years which can go up to Tk 172,327 as monthly pension if they deposit Tk 5,000 per month for 42 years.
Samata-holders will get monthly pension between Tk 1,530 and Tk 34,465 for depositing Tk 500 per month for 10 years and 42 years respectively.
Pension schemes should have been based on actuarial assumptions. Such assumptions include economic and demographic ones. In economic assumption, the rate of inflation and the rate of discounting are two key assumptions. In demographic assumption, the life table is very important while fixing contributions.
But the subscription rates and subsequent pension calculations made by the government were not based on such assumptions, says one actuarial analyst.
He mentions that Bangladesh has now an up-to-date life table made through a World Bank-funded project. "The government should have considered it."
He also says the inflation that erodes the real incomes of people has been growing on average 6.0 per cent per annum. So, if 10 years are considered, the cumulative inflation will be 60 per cent. It means that after 10 years the Tk 10 will lose 60-percent purchase power.
Dr Zahid Hussain, former lead economist at World Bank's Dhaka office, told the FE except Samata scheme, the returns from three other schemes are good comparatively the existing Deposit Pension Scheme (DPS) in banks.
However, he said, the question is there: after surrendering safety-net coverage how a person, staying below the poverty level, will be able to make Tk 500 contribution per month.
He also notes there is no mention where the government will invest the money, because it will have to make a return to the scheme-holders after certain period.
"Is the government going to spend the money for budget implementation? If so, will the government be able to return money once the scheme is matured for monthly payment?" he asks.
Mr Hussain says if the successive governments change the features of the scheme, the rate of return etc, where the scheme-holders will go?
He also questions if there is any mitigation to prevent it or not.
"The authority needs a very good fund manager for the scheme and also a commitment that in the future the features of the scheme would not be changed," he says.

[email protected]