Govt aims to sweeten Universal Pension with gratuity, health insurance

Infograph: TBS

To encourage greater participation in the Universal Pension Scheme (UPS), launched in August last year, the government plans to introduce two additional features: a one-time gratuity payment, and health insurance coverage.

The decision was made during a 14 October meeting chaired by Finance Adviser Salehuddin Ahmed, who also serves as the chairman of the Pension Board of Directors.

According to sources familiar with the matter, the National Pension Authority is currently assessing the suitable gratuity amount for pensioners and how it will affect the monthly pension payments.

Golam Mostafa, a member of the National Pension Authority, told TBS, "Adding a gratuity is being considered to make the pension system more appealing. Many countries, including India, provide a one-time gratuity."

Government employees receive monthly pensions and gratuity benefits, but the UPS was introduced to ensure financial security for all citizens aged between 18 and 50, allowing members to begin receiving their pension at age 60.

It includes four packages: Probashi for expatriates, Pragati for private-sector employees, Surokkha for individuals in the informal sector, including self-employed workers and day labourers, and Samata for low-income and marginalised groups.

Golam Mostafa explained that if a one-time gratuity is implemented, it will reduce the monthly pension amount. "Since public pensioners do not have a basic salary, the gratuity will be funded from a portion of their deposits."

"An analysis of how other countries handle gratuity payments will be presented to the Advisory Council. If the Council agrees, it will be included, but no final decision has been made yet," he added.

While Bangladesh implemented a pension system modelled after India's, the previous Sheikh Hasina-led government excluded gratuity and some other benefits.

India launched the National Pension System (NPS) on 1 January 2004, providing a one-time gratuity payment in addition to the monthly pension for retirees. 

India's model, Bangladesh's twist

Before implementing the UPS, a Finance Division delegation visited India to learn about its pension system. However, the previous government did not apply the insights gathered during the visit.

In 2004, India made the NPS mandatory for central government employees and autonomous bodies, excluding the military. By 1 May 2009, it became compulsory for all Indian citizens aged 18 to 60, and by December 2011, a new scheme was extended to private-sector corporations.

In contrast, after introducing the UPS, Bangladesh announced the "Prottoy" scheme for autonomous institutions, including universities. Additionally, another scheme for government employees was proposed during the FY25 budget discussions. 

 However, the Prottoy scheme was later abandoned due to protests from university teachers.

India's system provides withdrawal and exit benefits not available in Bangladesh's pension system. 

Similar to ours, it offers a monthly pension star ting at age 60, but if individuals withdraw before pension age, they can invest at least 80% of their accumulated savings in government securities, with the remaining 20% available for withdrawal.

In India, after reaching pension age, pensioners can invest at least 60% of their accumulated pension savings in the public sector, withdrawing the remaining 40% as a lump sum. If a member dies before reaching pension age, the nominee can withdraw 100% of the funds.

If a member dies after reaching pension age, the nominee is entitled to lifetime benefits from the purchased annuity service. 

However, Bangladesh's universal pension system does not provide a one-time payout. If a member dies after pensionable age, the nominee will receive benefits until the deceased pensioner's age reaches 75, which means, in Bangladesh, the nominee can only access this benefit for only 15 years.

In India's NPS, if a member does not withdraw his or her savings after turning 60, his or her pension account will be closed at age 70, and all benefits will be transferred as a one-time payment to the individual's bank. It is not available in Bangladesh's pension system.

Additionally, the interest rate in Bangladesh's pension scheme is quite low. While the general provident fund for government employees earns interest at 13% and savings bonds yield over 11%, the public pension scheme is set at only 8%.

Fewer benefits make UPS unpopular

The UPS failed to gain as much traction as similar systems in other countries, including India.

Launched hurriedly on 17 August last year with four schemes, the government's promotional efforts have failed to attract significant interest over the past 14 months. 

To date, only 372,378 people have registered across all schemes, with 285,884 enrolling in the Samata scheme alone.

The UPS, intended to attract mainly expatriates and private sector workers, has not been successful in doing so.

Other than Samata, only 86,494 individuals have registered across the three schemes for expatriates and private sector employees, with many stopping payments after just one or two months. 

Policymakers expected significant interest from expatriates, but only 910 have enrolled in the past 14 months.

The Pragati Scheme for private sector employees has 22,410 registrants, while 63,174 individuals are registered under the Surokkha scheme for informal sector workers or the self-employed.

The Samata scheme, designed for the very poor, requires a monthly contribution of Tk1,000, split equally between the registrant and the government. Despite its target demographic, others are joining to access the government's Tk500 contribution.

Finance Secretary Md Khairuzzaman Mozumder told TBS that the list of registrants in the Samata scheme will be reviewed, and those deemed ineligible will be removed and transferred to another scheme.