Some Concerns on the Universal Pension Scheme

If my understanding of National Social Protection Agency’s interview to Haveeru is correct, 13000 people including former Ministers Karanka Ibrahim Rasheed and Umar Zahir will be drawing Rf2000 per month from NSPA in a month’s time.

It looks like the Government put forwarded this universal pension scheme as a means to provide a safety net for our burgeoning elderly population. Anyone could see the merits of a universal pension scheme as our early baby-boomers are already headed towards retirement. My concern with NSPA’s pension scheme is not because it includes ex-ministers, but because this scheme, in its present form as explained in NSPA’s interview, will most probably become unsustainable in the next five to ten years. And I’m also a wee bit skeptical as to how much of a free transfer of resources this country can afford from the current working population to the retired. Now don’t get me wrong – I’m all for any effort that would ensure a higher standard of living for all age-groups of people in this country.

In the absence of a proper mechanism to do a means testing, the pension will have to be made a universal state pension. With around 13,000 eligible people eligible today, the total cost outlay of this scheme to our taxpayers is a whopping Rf 300million annually. And what we sometimes quite conveniently forget is that unlike in most other countries where baby boomers were a post-war phenomenon, we had our baby-boom during the late 60s, 70s and early 80s. With our life expectancies reaching levels that are comparable even to that of the developed world, in another 20 years the baby-boomer will reach retirement and we will have over 38 thousand people eligible for this universal pension. And the cost of this scheme would then spiral out of control to Rf900 million annually. And lets not forget the financial burden our government already has on account of the non-contributory pension scheme that pays 50 percent of the basic monthly salary as an on-going pension after every 20 years of service, to all government employees.

While most of us appreciate NSPA’s efforts to provide a safety net for our seniors, it appears that without major overhauls to the pension schemes, in terms of the way we fund them, they would collapse in less than ten years. And to me, the most painful part of this is that once the decision has been made to provide a universal non-contributory pension without any means testing, the ‘political cost’ of attempting to overhaul the scheme would be fatal to any government.