World Bank recommends changing pension system
According to the World Bank report, by 2050, Maldives will have the largest population of elderly people in South Asia.
The World Bank has raised concerns about the unsustainability of Maldives' costly pension system amid estimates that the country’s elderly population will grow exponentially in the coming years, and has recommended changes to the system.
The World Bank recommended this in a detailed report on South Asian countries, titled 'Rethinking Social Protection in South Asia: Towards Progressive Universalism', released this month.
The 362-page report highlights the measures taken by countries in the field of social security and the areas for improvement and makes recommendations for future measures.
Among some of the notable aspects of social security, Maldives is far ahead of other countries in the region. Maldives has the best performance in South Asia in terms of infant and child mortality, child development and poverty rates.
However, Maldives is almost on par with neighbouring Sri Lanka among the worst off financially. Then, the report highlights the growing elderly population in Maldives.
According to the World Bank report, by 2050, Maldives will have the largest population of elderly people in South Asia. Thus:
-
From 2020 onwards, the elderly population in Maldives will continue to increase; by 2050, the birth rate will drop dramatically and the elderly population will quadruple
-
Given the projected population growth rate, by 2060, 32% of the total population will be older
-
By then, the elderly population, or aged population, is expected to approach 60% compared to working age people
Therefore, the World Bank identified the structure of Maldives' pension system as one of the biggest challenges facing Maldives in the field of social security.
According to the report, about 90% of the money spent on social security programs in Maldives is spent on the pension scheme. The rest is spent on conditional cash transfers. This includes money given to single mothers, compensation for persons with disabilities and cash incentives given to those who lost their jobs during Covid.
Maldives has the highest relative expenditure on the elderly in South Asia. Even by international standards, the amount of pensions paid in Maldives is high. The World Bank noted that:
-
The old age pension in the country is high (at least MVR 5,000 per month), and it is unlikely to be sustainable in the future when the working population shrinks and the elderly population grows
-
Therefore, the rules for paying pensions should be changed to reduce the cost of the entire system
-
When retiring from work, incentives can be introduced to encourage people to save money from their own efforts
The fact that even those who do not pay for pensions at all will be able to get pension money on attaining the age of 65 is a threat to the country's financial stability. Therefore, it was suggested that the coverage should be increased in order to improve the pension system.
The World Bank said it could increase the number of people who have to contribute to the pension fund or 'contributory coverage' and introduce more ways to save money for retirement. In addition, the World Bank recommended wider use of pension funds. They include:
-
Set aside a portion of the pension scheme to introduce insurance benefits for the unemployed
-
Establish a standard for withdrawals from the pension scheme for persons with permanent disabilities and a certain amount of withdrawals from the pension for life-threatening illnesses
-
Conduct a life-insurance program sponsored by the state, based on the amount of money deposited in the pension fund
-
Give more flexibility to mortgage and down payment and ensure that the amount taken is deposited
-
Provide additional incentives to contribute to pension funds
The country's pension system is a multi pillar pension system introduced in 2009 under the Pension Act. The system is based on two main pension schemes. These include The Maldives Retirement Pension Scheme and The Basic Pension Scheme for The Elderly.
The current pension system in Maldives:
-
7% of salary is deposited into the pension fund every month from all employees along with the 7% from employers (14% in total)
-
On reaching the age of 65, a pension is provided through this system; If you are eligible for a pension, you can withdraw it at the age of 55
-
Basic pensions are paid to those who are not employed, those who cannot afford to save for pension through the Retirement Pension Scheme and those whose savings will not provide them with an adequate pension
