Government shifting to contributory pension scheme
August 7, 2018 08:48 AM NPT
New bill proposes deducting six percent of salary of government staff for pension fundNew bill proposes deducting six percent of salary of government staff for pension fund
KATHMANDU, Aug 7: The government has tabled a new bill in the parliament that will change the existing pension system for the government employees once it is enacted, making it compulsory for the government jobs holders to contribute to the pension fund.
The bill tabled in the federal parliament last Friday aims at reducing the pressure on the state coffer to meet the growing pension liabilities of the government employees.
“The pension liability of the government is rising continuously and it is becoming difficult to bear the pension burden from the internal revenue,” reads a note of the Minister for Finance Yubaraj Khatiwada, explaining the reason to introduce the bill to set up pension fund.
According to the Financial Comptroller General Office, the government doled out a total of Rs 40.14 billion in pension to 250,000 retired civil servants in Fiscal Year 2017/18, up from Rs 37.98 billion to 232,000 a year earlier.
The new pension system is a departure from the existing model where the government alone is bearing all liabilities related to pensions for its employees. Once the bill is enacted, the pension fund will be created and civil servants will have to contribute certain percent of their salary in the fund.
All permanent government employees, including those in Nepal Army, Nepal Police, Armed Police Force and legislative permanent, who are appointed after this law comes into effect, will be enrolled in the new contribution-based pension system.
Under this contributory system, a certain percent of the monthly salary of government employees will be deducted and channelized into the pension fund while the government will also contribute the equal amount. When the employees take retirement from the government job, they will be entitled for the pension and gratuity from this fund.
Each employee will have their own account in the autonomous and organized pension fund that will be operated by a five-member board of directors led by a special class officer.
The bill proposes deducting six percent of the monthly salary of each government employee, while the government will contribute equivalent amount for retirement benefit.
Those retiring from the government service after 20 years or more will receive lifelong pension from the government from the fund.
The bill has also proposed a formula for pension that each government employee will receive each month upon their retirement. According to the formula, an employee’s total service year will be multiplied by the last monthly salary and the multiplied amount will be again divided by 50. This figure will be the monthly pension for that employee after the retirement, according to the proposed provision in the new bill.
For example, if an employee had drawn Rs 30,000 in the last month and worked for 20 years, the employee will start receiving a monthly pension of Rs 12,000. Such pension amount will go up by 10 percent after three years, according to the bill. However, such increment shall not be more than five times in total.
In case of the death of any employee before or after retirement, the family of the employee will receive 50 percent of the pension amount.
However, employee, who is fired from the government job, will receive only the amount that the employee contributed in the fund along with the interest payment.
The bill also has provision related to the investment that the fund can make on a wide range of sectors from the government-issued debentures and foreign bonds to fixed deposit to manufacturing sector.