Bangladesh’s Old Age Social and Income In/Security On Razor’s Edge: Can Stakeholders Afford to Keep Quiet?

Bangladesh’s Old Age Social and Income In/Security On Razor’s Edge:

Can Stakeholders Afford to Keep Quiet?

(Kavim V Bhatnagar)

SUMMARY of ARTICLE

Backdrop and Demographic Issues

·         Bangladesh’s population is still young (93% below aged 60 years) but ageing rapidly with a 32% decadal growth rate of senior citizens outpacing 15% National population (decadal) growth by more than double

·         Bangladesh likely to have 31.2 million senior citizens (65+)  by 2050, more than three times what it is today with Senior Citizens (from 60) Surviving for Two more Decades with Greater Longevity Risk

·         Changing Demographic Structure like Lower Fertility, Increased Life Expectancy due to Improvement in living condition, health care, education and technology has resulted in increased proportion of elderly

·         Estimates from Chronic Poverty Research Center show that about half of the poor survive with US $ 1.25 a day

·         Break-up of joint family system, urban and out-country migration of youth and economic degradation in the society are giving rise to the problem for the aged

·         The majority (68%) of older women are widowed compared to only about 7% of men. Widowed women have no security, are more dependent on family and face worse socio-economic condition compared to men

Demographic Insecurity Warrants Public Policy Intervention

·         Majority of Bangladesh’s ageing working poor are highly vulnerable to old age poverty. They are not only excluded from access to formal pension provisions, but also unable to access any regulated insurance and retirement motivational savings product at an affordable transaction cost

·         Existing Social Safety Net (Old Age Pension) Covers Poorest of Poor Current Coverage of 2.4 Million receiving a paltry Tk. 300 pm. Budgetary Requirement to rise to Tk 41 Billion (at current prices) by 2050. Fiscally Unsustainable

·         Of the 57 million workforce Only 1.42 million Civil Servants and about half million employees of autonomous institutions have some pension and / or provident fund.

·         Less than 4% of Working Population in Bangladesh is covered under any pension / provident fund for old age

Need for Co Contributory Pension (Conditional Cash Transfers for Retirement)

·         Preliminary research and FGDs with few workers / farmers suggest that a significant proportion of working poor might be interested in saving for their old age and can afford an average annual savings of a few thousand Takas, provided a safe, secured and regulated environment is made available

·         Government needs to create a safe, secured regulated environment where micro savings could be channeled to customized long term savings that earn high real returns at low transaction costs.

·          Supplementary savings from the Government are necessary to achieve above poverty pension even with modest savings

·         Providing opportunities to the working poor to build up savings for retirement through thrift and selfhelp is an important public policy goal

·         Co contributory pension schemes also reduce potential future budgetary pressures of tax financed old age pensions by increasing self provision, contribute to economic growth by increasing aggregate long-term household savings, and facilitate labor mobility through fully funded portable pension accounts

Rationale for Co Contributions

·         To provide Equity and Fairness in subsidizing over the Tax treatment. Affluent and Salaried in Bangladesh receive Subsidies upto Tk 2,00,000/- pa in the form of Tax Breaks when they save for their old age under PF. On the other hand a low income worker who is neither a tax payer nor an investor in PF receives none even if she wishes to save for old age through un/regulated instruments.

·         Similar motive of savings for old age by the poor cohort provides them zero incentive to save for retirement. Even a 1% subsidy in nominal terms offered to the affluent could serve the purpose of CCTs for this cohort.

·         In the longer run the cohort of poor worker is more likely to fall back upon the Government in the old age while the richer cohort would still manage to sail through the ages.

·         Avert the Zero Pillar Freebies. Under the Old Age Pension, the GoB pays a paltry Tk 300 pm sum for aged 65 plus when the amount would not even buy two square meals a day. Instead, if the GoB co contributes Tk. 100 pm only while they are in their working and earning age on a CCT, it would encourage them to save in a regulated environment and free the GoB of their unfunded pension burden

·         With IT based Centralized Recordkeeping and Account Maintenance each Taka of Co contribution could be transparently transferred and tracked in each individual account with zero leakages

·         In case the GoB fails to do so, the young cohort is bound to remain poor throughout their old age and would consequently have to depend on the GoB in their old age.

·         Cost of Inaction could be disastrous for the PFM as unfunded liability could never be actuarially fair and accounted and could grow leaps and bounds as the cohort of 60 + would grow to 31 million by the mid of the current century and living for two decades with 96% of them without own pensions

Co Contributory Pension Comes with Challenges

·         There is Huge latent ‘Need’ but Zero ‘Demand’ for pension amongst the low income informal sector workers, as the concept of ‘Pension for Poor’ is absent. Transformation of Need to  Demand is the biggest challenge at the frontend to be reckoned with awakening the masses, educating them on pension literacy, making them realize the importance of saving for old age and finally create an enabling environment for them to start saving in a low cost secured individual based portable retirement accounts

·         GoB’s Co contributions alone may not motivate long term savings discipline and such schemes would need to be implemented with mass scale pension literacy and public education campaigns. Self-help-groups (SHGs), NGOs, MFIs, Unions can play an important role in targeting, reaching and servicing the rural poor and those with limited access to formal finance and banking services

·         Targeting the Beneficiaries and eligible workers and limiting the benefits to the intended workforce; accurately mapping individual annual contributions and transferring reconciled co contributions into individual subscriber accounts; achieving broad based and balanced Scheme coverage across all districts and identified occupations; establishing an efficient and secure Nationwide mechanism for periodic collection of modest contributions from thousands of low income individual workers across multiple districts; minimizing fraud and errors and resolving complaints and grievances of individual beneficiaries; delivering high real returns to individual subscribers, and ensuring active implementation management and coordinated actions by a large number of stakeholders

·         Learning from experiences in countries like India where the model has been time tested could be useful and handy. A beginning has to be made at this stage which is the right and most opportune time before it becomes too late.