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Retirement package and old age allowance program-II

M S Siddiqui

5th August 2016

Bangladesh introduced old Age Allowance Program 1998 in a very limited scale. Under the program
the elderly persons incapable of physical work and the destitute women of the country are receiving
allowance from the government on monthly basis. Till date only few lacs of old persons came under
the program. Government allocated 891 crore Taka in Financial Year 2011-12. The total beneficiary
of this year is 2,475 million. Beneficiary are getting Tk300 per month.
It is to be mentioned here that old age has become a social issue and due to modern medical science
and demographic change, the number of elderly persons is increasing day by day. Like the developed
countries, the Bangladesh government has become concerned about the security for the elderly
citizens. The Old Age Allowance is helping to strengthen the mental force of the aged persons,
increase their status in the family and bring back their sense of security in the society.
The old age pension scheme is implemented in the rural areas of all upazilas at union level and for all
wards of the municipalities of the 64 districts of the country. The Ministry of Social Welfare of the
government shoulders the responsibility of the scheme. Under the scheme elderly persons having at
least sixty five years of age will qualify for the allowance/pension. The introduction of Old Age
Allowance by government is undoubtedly an encouraging step towards the welfare of the elderly
population.

But it covers a small fraction of the vulnerable elderly population in rural Bangladesh. It is a fact
that this benefit is very insufficient compared to the needs of the poor elderly persons. Yet with this
allowance many elderly people have been able to utilize it for buying food, clothes and medicines for
treatment. However, the recipients face difficulties in drawing the allowance. They need to move long
distance upto the Upazila bank to collect the benefits. The allowance is distributed quarterly and in a
fixed day of a month. This arrangement causes sufferings to the recipients who remain for the whole
day without food in the bank where there are no toilet facilities for them particularly the elderly
women. The recipients of Old Age Allowance are deprived from receiving other benefits such as they
loose eligibility of receiving relief and other benefits.
In reality, however, it does not cover the definition of a modern pension system. In a modern pension
system, the superannuation scheme is an indefinitely continuing fund established as a legal trust in
order to provide benefits to fund members or their dependents upon the sickness, death or
retirement of the member. Any superannuation scheme adopted by Bangladesh should be developed
within a legal framework based on the law of trusts with individuals encouraged to contribute
through taxation benefits i.e. contribution to pension fund should enjoy tax exemption.
This is a promising beginning for providing security to the vast majority of elderly people who are
not covered by the existing pension system. Although it does not provide a universally social safety
network, which should be established as a universally accessible pension fund for global
participation and investment in home and abroad as income generating scheme. It should be run by
independent trust for independence from any interference from government or any other agency.
There is a constitutional commitment to the people of Bangladesh in evolving a retirement and
pension system that will be fair, equitable to meet all the fundamental obligations of social security
and basic human dignity. The World Bank's (WB) strategy for pension reform is to support a multipillar framework as best practice if proper initial conditions are in place. The WB has largely
supported a flexible, multi-pillar pension framework, consistent with its strategy. The multi-pillar
framework consists of a publicly unfunded pillar, a privately funded pillar, and a voluntary pillar.
Low-income countries Bangladesh with negative savings rates may prefer a pay as you go (PAYG)
pension system means take a scheme suitable for support from own income.
The primary objective of a pension system is to deliver adequate and affordable benefits in a
sustainable way, the legal constitution of the fund and its administrative processes should specify
clearly the benefits that the fund will pay to members. This is very important if the fund is to provide
effectively for the majority of the population and reduce poverty among the most vulnerable elderly
citizens. The pension fund system should be affordable for both individuals and government, and not
interfere with other more pressing needs or have untenable fiscal consequences. The Non
government organizations (NGO) introduced compulsory self contributory pension scheme for the
loan recipients. Every borrower is forced to open a pension account and start contributing every
month. This encourages preparing for old age, based on thrift and self-help system.

Bangladesh cannot support the pension packages for government employees and some poor person
under old age allowance from national exchequer. This is not a feasible idea to continue for long
period. Government cannot expend it to a total social security system for all citizens. The program
must have own source of income and management system under legal frame work.
Although the pension fund is a complex issue in any welfare system but it is thought to be a
productive investment formula. Currently, the world faces a common challenge in trying to increase
capital in pension funds for social security programs so that they can be managed effectively. The
programs in other countries both the developed and developing countries have modified the
program. The pension fund is considered to be an important aspect of the overall risk profile
assumed in this process. Better pension fund practices support improved domestic economic
progress, national savings, investment and corporate governance. In these ways fund beneficiaries
will have more service of food, shelter, health care etc. In Bangladesh, the lack of a proper regulatory
framework and guidance for corporate investment of pension funds is restricting the opportunity for
Bangladeshi citizens to benefit from investments in international financial markets, where the rate of
return might be higher than the fixed interest paid by the government in a pay-as-you-go pension
system.

The writer is Legal Economist