Major pension change

According to the finance minister’s Pay Revision Notification of 13th February, “The Government has approved a major change in the pension scheme…” The “major change” involves increasing pension benefits to 40% of the final basic salary and raising contributions to 22% of the basic salary (11% each by the member and employer).

Increasing pension benefits will, as I argued in a previous entry, affect the sustainability of our pension scheme. Some of this pressure will no doubt be relieved by raising the contribution levels.

So what overall impact will the government’s decision will have on the pension scheme’s sustainability? We don’t know yet.

What we do know, however, is that the government is dictating how our pension scheme will be run. And that is not good. Careless governments could easily misuse the pension fund to gain political mileage.

True, major reform is needed to make our pension scheme more sustainable and robust. But reform should come from the NPPF; it should not be imposed by the government.

 

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  1. I am keeping my fingers crossed that a proper study would have been made before passing such a decision. I hope i am not expecting too much.

    The interesting thing about the contribution increase is that only a few weeks ago the government was trying to save a little money by announce salary increment as allowance to save on the pension contribution, and now lo and behold…another HUGE decision from the DPT government to increase the contribution. Did the government just realize that they have enough money after all?

  2. I think this is one important issue in hand and i think its very important for our government to comeup to a smart solution for this problem. I hope enough thought, calculation and research is being done when they come up with the CR of 22%. I agree, NPPF should be the one recommending to the government and not the other way round.

  3. why worry tobgay? India has announced 100 billion support that will be enough, more than enough to feed all political leaders and bureaucrats. first finish that, more will come, faster you finish, faster you get new bundle.

  4. I think people are losing in any case….if I have to give my opinion, I would suggest Government to do away with the pension system.

    Pension system works in other countries because, people are careful and atleast have a house by the time they retire, which is not so in Bhutanese context. Somehow, Bhutanese people are not good savers. And I have seen people in utter chaos when they know, they would be retiring soon. The little saving which they have is in the form of *post-service benifit* which is now resticted to them.

    Whats the value of Nu.10,000( probably the highest pension) ten years from now…. with so much price escalation and increased rate of borrowing, we are actually losing to the Government. And the Government is not there to provide *social security* in terms of everyday household expences.

    I am telling you, its very difficult to makes your ends-meet after retirement. No wonder, people do not want to opt for any lucrative early retirement schemes. I am talking about the middle and lower middle class people, who do not wish to go back to ancestrel homes ( probably withought road and electricity).

    Lyonpo, I forsee this as a pertinent issue which needs careful deliberation. Infact there should be a debate!!

    So, it really does not matter how much we contribute, as long as we get it back in a single cheque!!

    BTW I am 29 and I still have a long way to go, and I hope we will have a fully functioning system by then.

    Always, better to prepare for the worst!!

  5. Bhutanese Blogger says:

    I am just assuming that a proper analysis of the impact of the changes would have been done by the Government when the changes were approved.

    However, I believe that the Government or the relevant regulator (probably RMA) should ensure that the pensions of the members are protected. Hence, a role for the Government. Would that amount to dictating?

    It would be interesting to hear what NPPF have to say about it.

  6. Anonymous says:

    Why are we focused on pensions for government workers. While many americans work long hours, and have lost major money so that they cannot retire, this has not affected government. Teachers, social workers, etc recieve a standard pension plus social security. They do not have to worry about the money lost as the rest of us. Seems like the government should try and focus on how to get money lost back to the working class the do not have the pension luxary. After all we are paying for your pensions with our tax money.

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