Pensioners want a Pension Act and pay hikes to apply to them

A group of pensioners have approached the Prime Minister’s Office (PMO) and the Good Governance Committee (GGC) of the National Assembly (NA) on the need for a Pension Act with the main aim being to link civil service pay hikes to pensions too.

GGC, in line with the request of the pensioners, will move the motion on the need for a Pension Act. If the NA agrees then the next move will be to come up with an Act.

The main issue for the pensioners is that while civil servants have been getting regular pay hikes apart from annual increments to keep up with the cost of living, there has been no hikes for pensioners.

As a result, they feel that the pension they get are way below the cost of living and in sufficient.

As of 30th September 2024, there are 10,232 people on pension including civil servants, armed forces and employees of SOEs getting Nu 96 million (mn) a month or Nu 1.152 billion (bn) a year.

Of this around 13% or 1,331 pensioners are getting pensions of only Nu 1,000 to Nu 2,000 per month.

Then around 16% or 1,637 pensioners are getting more then Nu 2,000 going up to Nu 5,000 a month.

The ones getting more than Nu 5,000 going up to Nu 10,000 a month in pension per month is 29% or 2,967 civil servants.

Pensioners getting more than Nu 10,000 going to Nu 15,000 a month are 24% or 2,456 civil servants.

The ones getting more than Nu 15,000 and going up to Nu 20,000 is 10% or 1,203 civil servants, and those getting above Nu 20,000 are 8% or 819 civil servants.

The minimum pension for current civil service members was made from July 2019 at 40% of the pay of 0 4 employees, which works out to Nu 5,510 per month. The O 4 is the lowest grade in the civil service.

In the armed forces the lowest monthly pension is Nu 7,337.

Pensioners point out that in India, for example, whenever, there is a Pay Commission, the pay hike is not only for in service civil servants but it also applies to pensioners.

Apart from this, the pension amount is hiked every 6 months based on a cost-of-living assessment.

In Bhutan, pay hikes do not apply to pensions, and there is only an increment every year which varies.

The pension request came about after a group of pensioners were formed on Telegram.

The need for an Act was also felt, as currently, the entire pension system is functioning on an executive order from the Lhengye Zhungtshog in 2002 which is, in turn, based on a Kasho of His Majesty The Fourth King to institute the pension system so that public servants and armed forces have something to fall back on after retirement.

A Member of Parliament said the absence of an Act is problematic as the thobthangs are not clear, and decision making becomes problematic in the absence of an Act. The MP said there is support in the Committee for the Act.

A long-standing concern for the pension fund has been its long-term sustainability once there are more people drawing from the pension than contributing, which is not the case now.

There are currently around 65,000 people paying into the provident and pension fund right now.

The monthly contribution is Nu 350 to 400 mn a month while the total payout is Nu 180 to 220 mn a month counting both Provident Fund and Pension.

From mid-2022 to 2023 with a huge spate of resignations, many people collected their provident fund and pension as lump sum amounts before touching 20 years, and so during this time the pay out was higher than contributions, but now it has stabilized.

According to the National Pension and Provident Fund (NPPF) data, the pension will only become unsustainable by 2064 if the contribution rate remains the same at 16% rate for civil service and 19% for the armed forces.

The Pension and Provident Fund (PF) contribution from the government for public servants is 15% of the basic pay. The PF contribution from the public servants is 11% of the basic pay. From the 15% Government contribution and 11% individual contribution, 16% is contributed into the Pension Account while the balance 10% is contributed to the PF scheme of the public servants which can be had as a lumpsum amount.

Earlier, if a public servant resigned before the pension hit 20 years, then they could get the entire amount as lump sum, but the Cabinet approved for this to be pushed to 23 years to encourage civil servants to stay longer.

NPPF feels that sustainability is not an issue as it made a record profit of Nu 3.3 bn last year after meeting the cost of operations, and even in the past profits are not less then Nu 2 bn a year.

NPPF feels that it makes sense to continue the pension system because if it is cancelled and every member is paid till the life expectancy age then the organization will have to pay Nu 33 bn more than what it has.

The organization, in July 2023, proposed various reforms to the former Cabinet to make the fund more sustainable. One of the recommendations was in terms of the retirement age for pension, and another was in terms of making the pension payout the average of the basic pay of the last five years instead of just the last pay which is quite high. There were other ideas too. However, it was not approved and is still with the Cabinet.

NPPF feels that even in the international context, one never hears of pension funds going bust. An official said while in Bhutan, it has been increased to 23 years, in other countries it is as low as 10 years as governments want to encourage people to have a stable income after retirement.

The current pension fund size is Nu 57 bn.

The pension payout is increasing over time. In 2023 it was Nu 85 mn a month, and now it is Nu 96 mn a month.

A NPPF official said that pension is supposed to provide social security, but at the lower rung in the current system, the ones with low salary get less. The official said a Pension Act would give teeth and ensure that private companies are also providing PF to their staff.