#1Pension Core Course 2017 organized by World Bank Group, Washington D.C., USA. 6-17 March 2017. Project work on Reforming Pension System in Nepal Presented By: Dhurba Bhattarai, EPF, Nepal Dilip Raj Paudel, EPF, Nepal Nomin-Erdene Erdenetsogt, MoF, Mongolia 1#2A B D E G Outline of Presentation • Brief Introduction to Nepal ⚫ Pension System in Nepal Challenges • Objectives of Reform • Reform Options • Impacts of the reform • Summary 2#3A. Brief Introduction to Nepal 3#4Nepal In a MAP of World CENTRAL ASIA Amu Darya AFGHANISTAN KĀBUL ISLĀMĀBĀD HINDU KUSH EAST ASIA MIDDLE EAST KARAKORAM, RANGE Indus NEPAL HIMALAYAS Brahmaputra PAKISTAN MT EVEREST KATHMANDU THIMPHU NEW DELHI Ganges BHUTAN DHAKA Gulf of Oman SOUTH ASIA INDIA BANGLADESH SOUTHEAST ASIA Bay of Bengal Arabian Sea Andaman Is. GHATS Andaman Sea SRI LANKA Nicobar Is Indian Ocean SRI JAYAWARDENEPURA MALDIVES MALE#5Zones 14 Dandeldhura India Jumla NEPAL Tulsipur Baglung Pokhara ©1992 MAGELLAN Geographix™Santa Barbara, CA (805) 685-3100 China Nepal Kathmandu, Sindhullmadi Rojbiroj 100km Dhuran 14 5#6Location 1. Brief Introduction to Nepal ● Latitude 26°22' N to 30° 27' N • Longitude • Region 80° 4' E to 88° 12' E South Asia Boarder Size Land Locked Mountainous Country. China in the North and India in the South, East and West. • Area 147,181Sq.Km. (0.3 % of Asia and 0.003 % of World) • Length 885Km (East to West) • Width Not uniform, mean width 193 Km. Average - Principal Mountain (Peaks). • The tallest mountain in the world 'Sagarmatha' (Mount Everest 8848m) • Eight other mountains with more than 8,000 m. Political Division. • Metropolitan city - 4, Sub-Metropolitan City - • Municipality - و Village Development Committee -#72. Demographic Characteristics Indicators Unit Percentage Total Population 30,986,975 100% Age 0-14 years: M: 4,989,268+ F: 4,805,381 Age 15 to 24 years: M: 3,521,421+ F 3,484,203 Age 25 to 54 Years: M 5,273,079+ F 5,775,404 Age 55 to 64 years: M 847,431+ F 886,760 Age above 65 years: M 648,917 + F 755,111 Annual Growth Rate 9,794,649 34.51% 7,005,624 19.97% 11,048,483 33.9% 1,734,191 5.95% 1,404,028 5.27% % 1.35% Life Expectancy (M/F) - (2014) Sex Ratio (males per 100 females) Year 69.37/72.5 96 Total Dependency Ratio % 64 youth dependency ratio: 55.4 % elderly dependency ratio: 8.6% Proportion of Urban Population Population having own resident GDP per capita % 19.00 % 85.26 US$ (2014) 1500.00 7#8Economic Characteristics 3. Indicators Unit Percentage 2249 Billion NPR 5.30% 9.50% 31.2% % 14.99 million 3.40 % (54.54% of total population) GDP Gross Domestic Saving/GDP Consumer Price Index Total Government Expenditure/GDP Economic Growth Rate Labor Force Available (15 to 60 years) - Economically Active Population Rate: 83% Employment Rate (+15) as per ILO definition: 97.90%. Employees (for wages & salaries): 16.9%. Informal employment (having no any social security): 86.4% Formal employment (having social security): 13.6% Self Employees (Own business or Profession): 83.1%. Labour Force Involved in Foreign Employment: 1.6 million Sector wise Employment: Agriculture: 73.90% Non Agriculture: 26.10% 8#9B. Pension System in Nepal 6#101. Pension: Historical background in Nepal • Started in 1936 for army personnel. • . . . • (Later, extended to other government employees.) The pension system is non-contributory and the total liability of pension and gratuity is financed from annual appropriation of government budget. First Pension scheme was established for the army personnel on 17th bhadra 1998 BS. (Pension amount was 1/5 of salary; paid till death) Pension for civil servants was established In 14th Mangsir 1999. Pension amount was 1/6 of salary. With a minimum of 25 years service for eligibility. Civil servants having at least 20 years service are eligible to receive pension for life. Amount of pension for civil servants not be less than 50% of basic salary and not more than 100% depending upon length of service, last drawing salary and denominator. After democracy in 1950, Pension payments were formalized and paid monthly. A non-contributory social pension/old-age allowance scheme introduced in 1995 provides allowances to older people aged 75 years (Now 70) and above. Allowances to poor widows aged 60 and above is provided. 10#112. Existing Pension System in Nepal • Coverage: Covers only government employees and public enterprises. (Civil servant, Nepal Army, Nepal armed police force and Nepal police, Government Teachers, University Professors & some government public enterprises) • Non Contributory and non Funded, Defined benefits (DB) (Entire Pension expenses is charged to government revenue or concerned PES on cash basis.) • Eligibility for Pension: 20 years or more service government employees. 16 to 20 years for Nepal Police and Army, 20 years for Armed Police Force (Retirement age: 58 years in case of civil service, 30 years regular employment in case of police and army, 60 years in case of schools teachers, 63 years in case of university professors, 65 yeas in case of officials of constitutional bodies and 55 years as per Labour Act.) • If not entitled to pension, gratuity will be paid. • Termination on disciplinary ground, no pension is paid. • The retirement age is 58 to 65 years.(Could take voluntary retirement After Service Period 16 to 20 in army and police) • Pension Calculation: Pension = Total service years X Last take home salary 50 (for lower level employee of military and police divided by 40). 11#12. • . Pension System cont... Range of Pension Amount: Minimum ½ of monthly salary and maximum 100% of basic pay scale. (Pension amount will not be less than half of the basic salary and not exceed basic salary of corresponding position.) Monthly pension on retirement, dependent pension (1/2 of monthly pension to widow and widower) educational benefits to minor children up to 18 years of age. Two third amount of salary increment of corresponding position will be increased in pension. Additional 10% of the monthly pension amount is also provided as medical allowance to the pension holders over the age of 75 and another 10 percent over the age of 85. Spouses of pensioner entitled to get full pension up to seven years from retirement, then 50% during lifetime. Income Tax: pension income gets additional 25% exemption on taxable amount. A pay as you go (PAYGO) or 'Defined Benefit' Pension. Administration: Pension Management Office (PMO), under the Ministry of Finance administer the government employee pension. Social Pension distribution by the Local Body through the Banks. Some public entity also provide the pension for their employee is managed by themselves (EPF, NEA, NT etc) 12#134. Current Status of Pensioners & Expenditure Total Pension Average Pension Average Pension Pensioner Fiscal Year Expenses (TPE) Income/Year Income/Monthly Number NRs. NRs. NRs. 2011/2012 11544493575 1,89,560 (068-69) 60901.53 5075.13 18299886523 2012/2013 1,96,626 93069.52 7755.79 22000000000 2013/2014 197963 111131.88 9260.99 2014/2015 212007 26010694707 122687.91 10223.99 2015/2016 (072-73) 226140 26927274971 119073.47 9922.79 Source: Pension Management Office, 2017 Feb 28 13#145. No. of Pensioners (Retirement Pension) Pensioner Fiscal Year Gov. Civil Nepal Army Nepal Police Total Teacher 2011/2012 56500 42869 66306 23885 189560 (068-69) 58500 44630 2012/2013 68207 25289 196626 64109 40878 2013/2014 64354 28622 197963 2014/2015 68286 67398 43473 32850 212007 2015/2016 (2072-73) 72752 71563 45730 36095 226140 Source: Pension Management Office, 2017 Feb 28 14#156. Beneficiaries of Universal Social Pension No. of Beneficiary Monthly Fiscal Year Rate 2070/71 2071/72 2072/73 2073/74 (FY wise) (Rs.) Number Number Number Number Old Age (70+) 2000 922741 952075 1049819 1102666 Single/Widow Women 1000 654719 646605 660128 620351 Dalit & the people of Karnali 1000 Zone (60+) Fully Disabled People 2000 32355 56030 62320 73264 (Red Card Holder) - Disable (Blue Card)- 600 Indogeneious 1000 Children (below 5 years) of 400 537118 19223 22256 23346 507718 469922 23123 469878 Karnali Zone Total 2166156 2184684 2265535 2289282 15#167. Structural Provision of Pension Particular Ministry of Federal affairs and Local Development Pension Management Office Respective office (NEA, EPF, NT etc.) Scheme Old age Pension/Social Security Allowance (Sr. Citizen, widow, disable, endogenous people....etc) Disbursement of Pension of Govt. Employees (Civil Servants, Nepal Army, Nepal Police & Teacher) Pension for own Employees of the respective organizations 16#17S. N. 8. Some Facts and Figures of Pension Schemes Particular Unit 2004/05 2008/09 2012/13 1 Number of Total Pensioner Number 118035 170511 196626 (Government Sector) 2 Total Pension Expenditure (NRs.) Million 3540 10372 18299 3% of Pension Expenditure of GDP % 0.60 1.08 1.26 4 % of Pension Expenditure of % 5.03 7.23 6.88 Total Revenue 5 % of Pension Expenditure of Total Recurrent Exp. % 5.71 8.13 7.70 6% of Pension Expenditure of Total % 3.44 4.75 6.41 Expenditure 17#189 8 9. Trend of Pension Expenditure 7 6 5 4 3 2 1 0 2004/05 2008/09 2013/14 30 September 2014 ■% of Pension Expenditure on GDP ■% of Pension Expenditure on Total Revenue ■% of Pension Expenditure on Total Recurrent Exp. ■% of Pension Expenditure on Total Expenditure 18#1910. Issues and Challenges • Limited Coverage. (Around 0.7% of total Population) . • • Increasing liabilities & Unlimited Liabilities (7.23% of revenue) Except Provident Fund Non-contributory, Non- Funded Liabilities for Gov. (Except Provident Fund) Heavy Financial Burden to the Government. (Long term burden due to increase in life expectancy) Inadequate Schemes: - - Provident Fund, Pension to Govt. Employees, Elder citizen, Widow women, Disabled Persons etc. Informal Economy: 90% peoples are not covered. e.g. Agriculture, self employee, other professional. (Less than 10% of total work force in corporate sector) Low level of earnings & lack of saving capacity Issues on - adequacy, coverage & sustainability of pension ➤ Low retirement age Mostly Nepal Army 38 and Nepal Police 36 Civil Servants <58) Unstable Interest rate and High Inflation Mobilization/investment of retirement fund: Risk and Return Lack of clear Pension Policy 19#20- - - - - - 11. Reform Objectives Coverage of the pension system, by both mandatory and voluntary schemes. Introduce pension scheme for private & Informal Sectors Adequacy of retirement benefits, increase social pension Financial sustainability and affordability of pensions to taxpayers and contributors, DB to DC for new government employees Economic efficiency: minimizing the distortions of the retirement- income system on individuals' economic behavior, such as labor supply and savings outside of pension plans, effective resource mobilization Administrative efficiency: keeping the cost of collecting contributions, paying benefits and (where necessary) managing investments as low as possible Security of benefits in the face of different risks and uncertainties, supervising agency#2112. Reform Options 1. A contributory pension system will be implemented (Pension fund: employers 10%, employees 5%, PF: employers 5%, employees 5%) 2. Retirement age will be 60 for both men and women for public and private sectors 3. Vesting period: at least 20 years of contribution starting from the contribution year, minimum pension shall not be less than 60% of minimum wages. 4. Informal sector: Each individual contribute the some amount with disclosed the per year contribution rate and Government contribution Rs 2000 per month on their Pension Fund account.#2213. Implementation Strategy • National Pension Policy with DC Pension system • Umbrella Act for Pension Management • Integrated Central Personnel Record • Department Unique Personal ID System (Digital/Biomatric) Enhancing institutional capacity#23• ● ● ● 14. Summary Coverage will increase (Private & Informal sector) Sustainability Government burden for government employee will decrease Help to minimize the poverty for elderly people Help to achieve the SDG goal - social security for all Equalizing civil servant and public sector's employees social security benefits. New civil servants will contribute to the pension fund#24Thank You for Your Kind Attention 24 24