Scheming pensions

Would you set aside a portion of your salary if, after you retire, you receive a comfortable pension every month? You probably would. Would you do so if the government matched what you contributed, and you received a bigger pension when you retired? You probably should.

But what if such a scheme is sustainable for only 30 years? Would you participate? I probably would – I’m 43 years old and I can expect to enjoy a pension till I reach 73. Naturally, anyone older than me would find the scheme even more attractive.

What if you are 35 years old and you retire at 60? You’d get returns for only five years before the scheme collapses. So you probably would not join. And if you are only 30 years old? You should not join. If you did, your monthly contributions would pay for my pension, and you wouldn’t receive any when you retire, because the scheme would have collapsed by then.

This is the reality of our pension scheme. It is sustainable for only 30 years (read Bhutan Times article). And it can get worse if the government dictates the conditions of the scheme. As, indeed, it already has by deciding to base pensions on final salaries (see the pay commission’s report and the government’s pay revision report, both published by the ministry of finance).

What the government should do is strengthen NPPF and give it independence. And then support the pension scheme to make it fully-funded. For that, members and their employers will need to contribute more; the retirement age will need to be increased; pensions will need to be more realistic; and the government will need to make big subsidies to pay for earlier excesses and to achieve desired pension levels.

Correcting our pension scheme won’t be easy. But it can be done. And must be done. Now. Otherwise our pension fund will be nothing more than a pyramid scheme that benefits the initial few at the expense of the rest.