Universal Pension Bill: Could It Really Take Off?

Parliament passed universal pension bill There is a budget deficit to fill. Low output and trust Will not raise the savings fast And may not bring pace to economy’s wheel.

Last week Bangladeshi Parliament gave its nod to universal pension bill. People between 18-year and 50-year are eligible for participating in this program. However, the program has raised lots of questions. Back in July last year, I wrote a piece,titled “Do We Need Social Security Programs?”¹, about futility of carrying such program in Bangladesh. Sharing parts of it again:

Argument put forward in favor of raising social spending is that in many developed economies social security spending occupies a decent share of GDP and in Bangladesh it is still below 3%.

In many of these developed economies, public opinion,petition lead the public representatives to scrutinize opaque issues,to summon concerned people at the Parliament to offer explanation. And the free press is allowed to broadcast and print details of the hearing. In Bangladesh that never happens. There are privileged people who roam scot free and hardly have any accountability. And a section of press,capable of manufacturing « narrative », keeps disseminating disinformation to maintain status-quo.

In many of these developed economies, unemployment rate is pretty low and they have a concept of social contributions apart from income tax.In a country of 160 million where we have only 7.5 million registered taxpayers,this idea of social contribution is alien. Many here enter job market pretty late. And prospect of job at private sector is pretty uncertain as ruling elites dominate the business. In the wake of regime change or corruption, many found themselves in the club of unemployed. In addition, a large part of our workforce involved in informal sector where scope for saving or making social contributions is very minimal. In developed economies, people contribute to government fund very long time to receive benefits during their post retirement age.In Bangladesh that kind of prospect is very bleak as very few could manage to do so. Here govt finances the social security programs through indirect tax,borrowing from banks and abroad.People’s participation in social contributions is absent. And most of this tax money falls into wrong hands. To sustain a government-run social security program,government has to collect contributions from many people just to give benefit to one retired person. But the concept of ratio of active age to retired age population and intergenerational transfer ²are not working in Bangladesh as we do not have well functioning institutionalized job market. One solution is to call for voluntary support to social security fund.

Govt may float social security bond,starting from TK 100. Those who are interested may buy these bonds using NID card. And NBR will track the number of bonds held by each NID. Based on the amount of one's contribution, one individual may receive a certain sum during his post retirement life. Government may also add fund to it. For instance, if social security bond fetches TK 100 crore. Government may contribute another TK 100 crore and distribute the money among the target population. Government may also launch a lottery to finance the program,more plausible than the social security bond. 5% of lottery buyers have chance to win some prizes while 95% will have the feel good factor. The point is if you really want social security then you have to contribute to it. Government in no way is going to pay fully the whole social security spending.

The bill has made it clear that to avail pension one has to contribute to the pension fund pool for at least 10 years. At the age of 60 or the retirement age,one will receive the pension amount. But the program is introduced at a moment government is facing liquidity crisis. In addition ,budget deficit keeps growing. In 2020,budget deficit was 4.9% of GDP. In 2022,it reached 6.2%. To finance deficit govt borrowed both from internal and external sources. Government borrowing from banks was 2.25% in 2022. Meanwhile, our debt to GDP ratio was around 12% in 2022³.So in the election year,universal pension program aims to draw voter attention and to bring vital money into the banking system. In developed countries, pension funds are huge. As such funds lie in the banking system for a prolonged time, govt is hoping to use the fund to finance development projects by borrowing from the banks. One member of the Parliament quite rightly laid bare govt intention,saying that people would not be fooled by trusting again this government who emptied the banks. As the deficits get widened,our output will be lower. Our major markets across the globe are in recession. So savings will be lower in the long run. Thus government’s plan to raise savings through pension fund may not go as smoothly as it conceived at the initial stage.

Household’s ability to spend will deteriorate further in the wake of inflation, loss of income and further fall of Taka in the future. So, how many of the people outside institutional job market will participate in this program is a matter of serious scrutiny.

As govt is mulling to offer ration card to 10 million vulnerable families, it is better to downsize/abolish other social programs. At the end of the day,money well spent or lost belongs to people. I think in the face of rising budget deficit and rampant corruption in the financial sector, this universal pension program will not garner much attention. Only government with popular mandate can float and initiate such social security program. For that a transparent and acceptable election that will promise to improve the governance situation is a must.

Notes And References:

1. ”Do We Need Social Security Programs? “,Rezaul Hoque,https://hoquestake.wordpress.com ,June 16,2022. For more read at https://hoquestake.blogspot.com/2022/06/do-we-need-social-security-programs.html?m=1
2. “Macroconomics”,Rudiger Dornbusch,Stanley Fischer,Richard Startz,7th edition,McGraw-Hill.
3. Bangladesh Bank