Sustainability of pension fund a concern

Sustainability of pension fund a concern

PM discussed the challenges to ensure sustainability of National Provident Fund, amidst rising civil servant resignations

During the recent “Meet the Press” session held on April 3, 2023, the Prime Minister (PM), Dr. Lotay Tshering spoke about the sustainability of the National Provident Fund (NPPF) and the challenges it faces. The issue has become more pressing as hundreds of civil servants in Bhutan have been resigning from their jobs after serving for many years and then resigning during their 19th year of service, with the fear of entering into pension scheme creeping in.

The NPPF reported that in the fiscal year 2021 to 2022, 3,637 civil servants resigned, with 347 of them leaving after five to ten years of service. This group made up 10% of the total number of resignations, with more people in this group resigning than those who have served for 15 to 20 years. Some believe that it is wise to resign before entering the pension system and take the lump sum retirement benefit.

Meanwhile, the PM stated that the sustainability of the pension fund is a complex issue that depends on various factors. While the fund has a significant amount of money, it is not the only factor that determines its long-term viability.

“One crucial factor is the eligibility criteria for the fund, and another is the lifespan of eligible Bhutanese citizens who enter the pension scheme at 57 or 60 years old and live longer. As people live longer, the pension system faces challenges, not only in Bhutan but also globally.” the PM said.

He also highlighted the need for wise investments to ensure the sustainability of pension funds. However, pension funds are restricted in terms of investing in safe and assured investment portfolios.

 Another significant challenge is the lack of proper investment options, which forces pension funds to be invested in shares, hydropower, and government bonds. The population gap and fertility rate are also a challenge, as the number of productive citizens is decreasing while the country’s population is increasing due to longer lifespans.

“Many countries are facing similar challenges in ensuring the sustainability of their pension schemes. France, for example, is considering raising the retirement age due to the un-sustainability of its pension system.” said the PM, adding that, Bhutan is undergoing financial institutional reforms that prioritizes the sustainability of pension funds.

The amount of pension that individuals receive after retirement is dependent on their contributions and the government’s contribution. However, increasing the government’s contribution is not a viable solution as there are not enough government funds to sustain it and increasing the contributions from the individual civil servant is also not viable especially for the low wage earners, there for many are opting not to enter the pension scheme and prefer to take lump-sum amount to start a business, according to the PM.

“Bhutan is known for its relatively low civil servant salaries, but it provides free healthcare and education to its citizens,” the PM said.

He also emphasized that reforms should prioritize providing enough funds after the retirement age, for basic needs such as bills, groceries, and affordable housing and education in Bhutan.

Nidup Lhamo from Thimphu