The Bhutanese Leading the way.
After more than two decades of operating without a formal legal framework, Bhutan’s pension system is set to undergo significant reform. The National Assembly (NA) through a motion has agreed to enact a Pension Act within the next year, aiming to address the governance, management, and regulatory challenges currently facing the National Pension and Provident Fund (NPPF).
The Finance Minister Lekey Dorji said the government is already working on a Pension Bill but more time is required and so the motion was modified asking the government to present the Bill in the next winter session.
This move comes after years of discussions about the need for a comprehensive policy to support the growing number of retirees, and address issues related to the fund’s sustainability and efficiency.
Currently, NPPF operates under an executive order, which limits its autonomy and has led to concerns about its ability to effectively manage funds and provide sufficient benefits to retirees. The Good Governance Committee of NA presented several challenges faced by the pension system, including the resignation of civil servants before enrolling in the scheme due to its limited benefits and a lack of investment options.
The committee also highlighted findings from a survey involving 232 pension scheme members and retirees, revealing that 98.7% of respondents felt their pension amount was inadequate, while 74.1% said the system failed to provide sufficient social security.
The existing pension scheme offers a maximum monthly pension of Nu 35,344 and a minimum of Nu 780. However, a significant proportion of retirees, about 10%, receive pensions of less than Nu 2,000 per month, a sum often deemed insufficient for basic living expenses. As the country’s ageing population grows, the strain on the pension system is expected to increase, further underscoring the need for reform.
In response to these challenges, NA has called for the introduction of a Pension Act to formalise the NPPF’s operations and ensure better governance. MPs have argued that a stronger pension system could not only provide better social security for retirees, but also help prevent the loss of experienced civil servants by making the pension scheme more attractive.
Health Minister Tandin Wangchuk suggested that a holistic approach to social protection, including expanding pension coverage beyond public servants, could help improve the system’s sustainability and reach more Bhutanese citizens.
However, the proposal to enact the Pension Act comes with financial considerations. The Finance Minister stated, “ There is a significant shortfall in the pension fund’s liabilities, amounting to nearly Nu 10 billion. This gap, combined with low returns on investments, presents a challenge for the long-term viability of the system.” He stressed the importance of developing a broader social protection mechanism before introducing the Pension Act to ensure the fund’s sustainability.
Currently, NPPF has over 61,000 members, including 10,000 pensioners. Despite the challenges, the government has allocated Nu 2 billion to support social protection initiatives. A draft Pension Bill is expected to be presented in the next winter session of Parliament, following consultations with relevant stakeholders.
While the Pension Act is seen as a necessary step to address the deficiencies in the system, its success will depend on how effectively it addresses the financial shortfalls, expands coverage, and improves the benefits for all members, especially as Bhutan’s population continues to age. NA’s approval marks a critical step in the ongoing effort to strengthen Bhutan’s social security system, but much work remains to ensure its long-term success.
A senior official on the condition of anonymity said the main issue is the sustainability of the pension fund.
The official said that even though a civil servant contributes to the pension for 30 years they get back a lot in lump sum payment with Provident Fund and since pension is given on the last highest pay the pension contribution in reality is only enough to pay pension payments for 4 years and after that the retired civil servants is getting more than he or she ever contributed.
The official said after 4 years the younger generation contributing now is subsidizing the current pensioners and this is not sustainable as Bhutan ages more at which point the pension fund will go bust.
The official said there are issues of inter-generational equity, system affordability and how only a few civil servants were benefitting when the future is uncertain and at the same time social protection is not extended to all.
