Nepalis insecure about new Social Security Fund
In one of his moves to shore up public support, former Prime Minister K P Oli launched his much-vaunted Social Security Fund (SSF) in November 2018 amidst much fanfare.
The government bought full-page ads in the national media, and Oli’s face was on SSF posters all over the country. Oli was trying to ride a populist wave ahead of the 2023 elections, and pushed a project actually designed under a previous government.
The SSF was billed as a ‘birth of a new era’ while promising the ‘protection of the working class’.
Now, with Oli no longer prime minister, the future of the scheme has been thrown into doubt. Most of its supposed beneficiaries are not convinced about it, the private sector is taking a wait-and-watch approach, and there have been few takers.
Earlier this month, trade unions of 22 commercial banks filed a writ petition in the Supreme Court demanding a repeal of mandatory listing in the SSF, citing that it was less beneficial to workers than existing welfare funds.
“We have been receiving government-set assistance from appointment to retirement, it makes no sense to opt for SSF, slashing our current benefits,” says Padmaraj Regmi of the Financial Institutions Employees Union Nepal (FIEUN).
The employees argue that they have been in service before the implementation of the Labour Act 2017 and hence are covered by the regulations of Section 133(1) of the Bank and Financial Institution Act 2017. Moreover, they add that banks and financial institutions have also set up a separate welfare fund for their employees, which they find more beneficial and practical.
On 9 April, SSF issued a notice to the employers who had missed the listing for compulsory registration by mid-July. The fund had similarly written letters to the Nepal Bankers’ Association on 16 March and 31 May calling for their registration.
While banks and employers were willing to take part, the backlash and workers’ agitation have made them reconsider. Says CEO of Sanima Bank and chairman of Nepal Bankers’ Association Bhuwan Dahal: “Legal arrangements, government plans and policies are on our side, and we work within government guidelines. However, we cannot move forward knowing that our employees have doubts about it.”
Banks and employers in fact stand to gain from the SSF, as compensation in a case of a death of a worker would then be solely managed by the fund.
When Sanaj Khatiwada of Sunrise Bank died in August 2020, his family approached the SSF for compensation. The fund ordered the bank to pay Rs4.3 million in restitution, derived from 60% of the employee’s monthly salary as decreed by the Social Security Scheme Operating Procedures 2018.
Global IME Bank was also ordered to pay Rs10.5 million to a victim’s family in a similar case in March. Both banks were not part of the SSF at the time and bore full financial responsibility.
SSF spokesperson Bibek Panthi claims that the fund was designed with workers and employees at its centre, and that no benefits will be stripped away upon joining it.
“The SSF was set up to ensure that workers couldn’t be exploited and to secure post-retirement life. All benefits outlined in Article 178 of Labour Act 2017 are enshrined by SSF,” he says.
However, upon closer inspection of the provisions, one can see why the workers and businesses are up in arms.
Entirely contribution-funded, 31% of the basic salary of each employee (11% by workers and 20% by company) must be deposited into the SSF, but some companies are making workers deposit up to 20% out-of-pocket. These are significant financial undertakings in times of slashed income due to the pandemic-induced economic collapse and job losses.
When inflation and interest are taken into account, subscribers will in fact lose money. Even so, one must wait until age 60 to receive monthly pensions, but any amount accrued before 60 cannot be withdrawn post-retirement. Monthly accumulations cannot be withdrawn all at once post-retirement, either.
Also, funeral costs, accident insurance and medical coverage are not covered after three months of retirement. Moreover, the dependent spouse will receive only 50% compensation if the employee dies after 15 years of receiving the pension.
“Saving 30% of salary in the current economic climate is difficult for many, people must have the freedom to choose when it comes to safeguarding their money,” says the former chief of the investment department of Employees’ Provident Fund Arjun Gautam. “It is counterproductive to force customers to leave government-run funds and join another one.”
There are also doubts about whether the government can handle sole responsibility for the social security of private workers, especially as the informal sector has not even been factored in. The government plans to cover over three million social taxpayers with the SSF. But as of now, only 14,738 employers and 257,817 contributors are registered from an estimated 923,000 private institutions across the country.
With current contributions standing at Rs6.65 billion, experts fear the fund may be financially incapable of handling the tenfold increase in outlays and deposits if and when the informal sector is roped in.
In fact, the SSF is serving the same purpose, but only worse, that existing government schemes provide. The Citizens’ Investment Fund and Employees’ Provident Fund provide hybrid and public sector coverage respectively, with the former already offering 11 service pensions and insurance schemes.
“So far no one has come to us to close their accounts and move to the SSF,” says Managing Director of Citizens’ Investment Fund, Raman Nepal. The SSF has issued dozens of notices and extended deadlines for listing multiple times since 17 July 2019 until now, but to no avail.
Private institutions however have no alternative but to sign up for it, says spokesperson Panthi, who blames misinformation and rumour-mongering for the scheme’s failure to meet the expectation.
“The government created this scheme for the workers’ benefit, but they themselves are finding excuses to not join and be at a disadvantage,” he adds.
To be sure, there are some progressive clauses in the SSF. In the event of a workplace accident, it will provide full coverage on treatment costs. The SSF also covers occupational hazards and illness as well as monthly funds for the education of dependent children of a deceased employee.
However, the SSF is complicated and unattractive for the general public. It is split into the medical treatment, health and maternal care plan, accident and disability protection plan, dependent family protection plan and elderly protection plan. Contributors who have deposited for three months can cash in on the healthcare and maternal plan, which lasts for three months from the most recent deposit date, but can only be claimed by one spouse.
The dependent family protection plan is further split into education funds, spousal retirement funds, elderly parents' support and final rites expenditure. No matter the cause of death, the subscriber’s spouse is guaranteed to receive monthly stipends of 60% of the deceased’s basic salary. However, if the claimant has alternate sources of income, they are not eligible. This applies to the deceased’s spouse and elderly parents.
The accrued amount and returns from the SSF deposit are added then divided by 180 to be handed out as monthly pension, for which the subscriber must be above 60 and should have contributed for at least 180 months (15 years). Experts say that this time period is too long and impractical, especially when money cannot be withdrawn at will.
It is clear that the planners designed the SSF without taking the economic reality and situation of the country into account, say experts, but nonetheless there is a space for improvement.
Says Gautam: “We copied a foreign product without considering our economy and quality of public education and health facilities. As it may erode public faith in similar schemes, the fund must be restructured, made more competitive and optional, which will then attract workers.