Universal pension to take effect from July next year

The long-awaited universal pension scheme will take off in July next year. All citizens aged between 18 and 50 will be entitled to the benefits of the move.

The finance ministry is mulling to bring a large number of citizens under the pension scheme before the next national election slated for December 2023.

Finance Division officials say they have formulated a roadmap to put the private sector pension plan into effect. Work is now going on around a piloting of the scheme from next March.

The division has already drafted a law to form a body to oversee the pension scheme and sought the opinions of the ministries concerned.

The draft law was finalised at an inter-ministerial meeting chaired by Senior Finance Secretary Abdur Rouf Talukder on Monday.

"The draft law will be presented to the cabinet for approval later this month. If approved, it is likely to be passed in the form of a bill in the next budget session of parliament," said a Finance Division official.

The finance ministry is planning to form the pension-overseeing authority as soon as possible. Different pension products will be prepared in January-February after the appointment of necessary manpower by December.

Two ministry officials, speaking on condition of anonymity, told The Business Standard that the government is now focusing on two issues – first, coping with the effects of the Russia-Ukraine war and second, introducing a full-fledged universal pension system from July next year.

For now, all citizens except government employees between the ages of 18 and 50 can enrol in the universal pension scheme and pay a fixed monthly fee, as low as Tk100, to the pension fund. Under the scheme, the registered individuals will enjoy the facility from the age of 60 until their death.

A number of questions in regard to the draft law came up from various ministries at the inter-ministerial meeting. For example, an official asked the finance secretary what the pension system of a citizen who joins government service at the age of 24 will be after enrolling in the universal pension scheme at the age of 18.

Will they be included in the existing pension system for government employees, or will they remain in the universal pension scheme? And if they come under the government pension system, what will happen to their six-year contributions to the universal pension fund?

"We have not thought of it yet. Hopefully, these issues will be clarified in the universal pension rules," the finance secretary told the meeting.

As per the draft law, Bangladeshis working abroad will also be able to take part in the universal pension scheme. Under the scheme, aspirant pensioners can pay fees on a monthly and quarterly basis. There will also be an opportunity to pay in advance and in instalments.

Citizens can open pension accounts based on information provided in their national identity cards. A person will be eligible to receive a monthly pension if he or she pays a fee for at least 10 consecutive years. Pension will be given at the prescribed rate against the deposit along with dividends accumulated once they reach the specified age, 60 years. A person will then receive pension every month until his or her death.

A person's nominee will be entitled to his or her monthly pension if he or she dies before the age of 75 and will receive it for the remaining period.

Besides, if a person dies before fulfilling his or her 10-year fee payment quota, the deposit will be returned to the nominees along with profits.

There will be no option to withdraw the money deposited in the pension fund in one go, but 50% of it can be taken out as a loan, which has to be repaid with interest.

The pension deposit will be considered as investment and will be given a tax rebate. And the monthly amount that pensioners will receive will be completely free of income tax.

The government will bear the expenses associated with the pension authority and other related costs. The regulator will invest the money deposited in the fund in accordance with the prescribed guidelines and make efforts to maximise profits.

In April 2014, the then finance minister Abul Maal Abdul Muhith spoke of introducing a pension system in the private sector for the first time during a pre-budget meeting with representatives of non-government organisations. 

In his budget speech in June that year, he made an announcement in this regard and asked the Financial Institutions Division to finalise the pension scheme.

He reaffirmed his commitment in the following years and announced the launch of a pilot project to introduce a pension scheme for the employees of private banks and corporate organisations in 2018. He also announced the introduction of a universal pension system from 2021.

But after the first announcement, two years went by because of a dispute on the question of which department of the finance ministry would run the pension programme.

 Over the next two years, a team led by an additional secretary of the Finance Division toured various states of India and gave a presentation in 2016 on how to launch the programme.

The initiative came to a halt when the head of the team, former additional secretary ARM Nazmus Sakib, was transferred to the Office of the Chief Controller of Imports and Exports in 2017. He went on pre-retirement leave (PRL) in 2019.

In 2020, an initiative was taken to prepare the concept paper by employing Nazmus Sakib on an outsourcing arrangement, but that did not work out due to the outbreak of the novel coronavirus. 

Pointing out that introducing a pension system for the massive workforce of around six crore is a daunting task, officials at the time said a lot of preparations, including building institutional and technical infrastructure and hiring foreign consultants, needed to be done for work on it to begin.