Sri Lanka to defuse the pension payment time bomb
Sri Lanka has initiated action to defuse an inter-generational time bomb as future generations will have to bear the rapidly increasing fiscal burden for public sector pension payments.
The government, having identified the growing challenge that Sri Lanka has to face with an ageing population, has proposed the introduction of a National Pension Plan with a sustainable financing structure, official sources revealed.
A senior Treasury official told the Business Times that a nationwide contributory pension scheme is now being formulated and implemented soon.
Government expenditure on pensions has been on the rise and in 2018, Rs. 194.5 billion was paid accounting for 9.3 per cent of recurrent expenditure, Central Bank data showed.
By February 2019, there were 623,417 pensioners which is 2.9 per cent of the total population, the official said adding that around 10 per cent of the government’s recurrent expenditure is spent directly on less than 3 per cent of the total population.
According to the Census of Public and Semi Government Sector Employment conducted in 2016, 84,084 public and semi government sector employees, excluding armed forces (7.6 per cent of the total employed) were over 56 years of age and 854,300 (77.4 per cent) were between 30 – 55 years of age.
Under this scenario, the government will have to bear the cost of pensions of over 80,000 additional pensioners by 2020 and over 800,000 additional pensioners in the forthcoming 30 years, he asserted.
Since the Public Sector Pension Scheme (PSPS) is a non-contributory scheme with defined benefits, the burden on government expenditure will escalate in the coming years, he predicted.
These contributions from employees, and the government could be invested in financial markets including government securities. When the employees reach the retirement age, their benefit could be returned in the form of an annualised pension, he said.
According to a recent World Bank report, the limited savings and instructional support mechanisms should be in place to support this rapidly expanding elderly population.
Increasing costs mean that programmes such as the PSPS could struggle to deliver on their benefit promises over the long run, while the EPF – the employer-based defined contribution saving scheme for formal private sector workers – appears inadequate to meet the costs associated with over two decades of retirement.