Recently there is much hype about the Social Security Fund (SSF). It increased with SSF forcing bank and financial institutions (BFIS) to come under it, and BFIs refusing to do so.
Currently inflation rate is more than 6 percent. Allocation 20% Income in Pension Fund under SSF doesn't sound logical as the contribution collapses after life time of Contributor. SSF creates following Social issues and challenges, which have direct impact on National Economy.
1. Loss of Individual Contributor’s movable Property which is created out of Tax paid 20% Income during service time under article 25 of the Constitution of Nepal. Per month Pension Income is below the Interest Income from FD in any BFIs at the prevailing market rate where Principal shall be refunded.
2. Right of Tax paid earning of 20% becomes Contributor’s facilities only after retirement
3. Pension Income is not sufficient even for survival after retirement considering average family size (4-5 members) of Nepal and sometimes difficult to take this Pension Income by creating different legal hassles.
4. Contributors become lazy and productive life is assumed to be finished as Pension Income is started which ultimately impacts on National Production.
5. Retirement life shall be just like for survival and dependent on Pension Income only and such facility can also be suspended at any point of time with recommendation of Government.
6. Compromise in Individual’s needs and wants due to limited source of Pension Income after retirement which could not be fulfilled during service period.
7. Decrease in Social economic status and deprived from family as well after retirement.
8. Ignorance of Time value of Money in these open market situations and loss of opportunity Income.
9. Scope of Investment is reduced and has an impact on the security market as well as Government Bonds.
10. Reduction/ hesitation in Entrepreneurial creation and development among Contributors during service period.
11. Lack of seed Money for Entrepreneurial creation/ business startup after retirement for Contributor or his/her family members.
12. Lack/scarcity of Funds for construction/ purchase of a Residential House as Salary Income is only sufficient for household consumption during service period and have impact on production of construction materials in Manufacturing sectors since majority of Service holders have plan to construct/ purchase Residential house either as loan taken from PF/CIT or from the retirement payment to fulfill dream of having an own residential house in our Nepalese society.
13. Contributor cannot take loan from contribution in Pension Fund of 20% which is huge amount and lost at the end of life period of Contributor.
14. Contributor cannot avail loan from any BFIs after Retirement based on his/her Pension Income since repayment of housing loan installment is not sufficient from Pension Income.
15. Lack of Fund to repay loan taken during service period at the time of Retirement also.
16. Lack of funds for providing higher education/going abroad to the children at the time of Retirement.
17. Cannot not fulfil personal desires like purchase of Vehicle and travelling abroad after Retirement life and have direct impact on Automobile, Travel and Tourism Sectors.
18. Lack of Fund for Social obligations like for marriage of son/daughter at the age of Retirement and other Social activities after Retirement otherwise Lockdown model of social function should be established and our social culture should be drastically changed.
19. Lack of funds for huge medical treatment after Retirement, if required.
20. Reduction of purchasing power even for daily consumables after Retirement and the level of consumption is in decreasing trends.
21. As there is a reduced consumption level, there will be problems in reduction and consumption cycle, reduction in employment creation, reduction in Government revenue which ultimately have great adverse impact in economic activities.
22. Although SSF created security plans for medical, accidental and family security, all these types of risk can be covered from Life Insurance Policy for the service period as well as after Retirement and even sum insured shall also be refunded.
23. There will be disturbance in the working environment after 1st Shrawan, 2078 since two types of facilities are provided for the same level of job work and create conflict between employees.
24. Another concern of Contributors is fear of reduction in existing earnings. Organized sectors are paying Gratuity of 2-3 month per year for service period. By calculation, there is huge reduction in earning potential as well as Tax implication of up to 51% under SSF plan whereas 15% of Tax rate is applied for Retirement Payment now.
25. Once an organization goes under SSF plan, they will be hesitant to pay more than 8.33% of Gratuity and there will always be conflict between Management and Employees although labor law does not allow it.
26. Increase Family/ Social problem to take lumpsum amount before Retirement time like increase the case of suicide, divorce and brain drain.
27. The Government of Nepal provides old age Pension to Father and Mother of the same family now. But in case of death of Contributor during service time or after taking 180 months Pension, respective husband/ wife or Father/ Mother who has alternative job/pension Income shall not be allowed to take neither Tax paid Principal amount of life time earnings and savings of 20% as a PF of contributor nor pension from that amount.
28. In case of death of Contributor, the provision of Contribution-based-SSF-law-2074, is not clear about ultimate beneficiary of Individual’s account on SSF where as in base of PF/CIT/BFIs, his/ her immediate legal heirs shall be the beneficial owner of deceased depositor/account holder.
29. The Principle of my contribution is for the security of myself/my family should be established and not for others since it is a Tax Paid contribution. In addition to that security plan for medical, accidental and family security should be given the whole life period of the Contributor and his/her family members.
30. Actual Pension should be given from the Tax paid amount during service time and the nomenclature of SSF is not appropriate. A Pension Fund created out of each Individual’s Contribution in his/ her Fund Account is like an Individual Bank account in any BFIs.
Way forward for SSF:
Way forward for full implementation of SSF is to make old age home for retired Contributors and provide Fooding and clothing at free of cost for remaining whole period of retired life. This must happen as state is following Socialistic Economy. Oherwise 20% of PF/CIT should not be taken as Indirect Tax from Contributors. Also, education and health should be absolutely at free of cost for every individual Citizen and his/her family members.
In our Country, there are a large number of unorganized Institutions where labor law is applied but cannot even pronounce labor words. SSF is basically for those employees from unorganized sectors. Organized sectors are somehow providing some Retirement payment for their employee's Retirement life. SSF should be able to expand the scope in all these unorganized sectors to assure Retirement benefits payment rather than focusing on management of Retirement benefits of organized sectors.
Opinion and conclusion:
In conclusion, we all should follow the Law of Land. But by considering the above points in our Nepalese context, SSF cannot secure the Retirement life and create Financial and Social tension even after Retirement life. Even if we ask for pensions for employees of those unorganized sectors, they want to take a lump sum amount of PF and Gratuity at the time of retirement. That too if the organization really provides it. This is because they also know the time value of Money opportunity Income from the lump sum Retirement amount. They are choosing pensions without having any choice from the organization. If they are not choosing Pension, they will not get any PF and Gratuity also from Organization.
If all organizations assure to provide PF and Gratuity, they will choose to take an amount in lump sum at the time of Retirement. So, if SSF is really an Individual’s Contributory in nature, Contributors individually should have the right to choose how much to take as Pension and Retirement payment to secure his/her Retirement life.
Wishing for secure society of prosperous Nepal and stay safe!
Writer is Social Campaigner.