A proposed amendment to the Pensions Act which would bring down the eligible age for the basic pension may add Rf138million (US$8.9million) to the government’s annual budget.
The bill has been criticised by the Capital Market Development Authority (CMDA), the pension industry’s regulator, as potentially damaging the country.
The proposed amendment was introduced to the Majlis last year by Dhivehi Rayithunge Party (DRP) MP for Felidhoo constituency Yoosuf Naseem. It received its first reading in August 2011.
The reduction of the age of eligibility from 65 to 60 years old has the potential to increase the number of those eligible to receive the pension by 33 percent.
According to the most recent figures from the Maldives Pension Administration Office, 15224 people received the basic pension of Rf2300 in April. This represents an outlay of Rf35 million (US$2.2million) per month.
The Pensions Act stipulates that the costs for the provision and the administration of the Basic Pension Scheme be incorporated into the government’s budget.
The current budget deficit is estimated to be Rf9.1 billion (US$590million), or 27 percent of GDP.
“Soon there will be a vote to accept or not. If accepted it will go to committee for extra fine tuning. This process will take about two or three months,” Yoosuf explained.
Mariyam Visam, Director General of the CMDA, hoped that the Majlis’s members would examine the figures carefully before approving the amendment.
“Policy makers need to look into the figures before they make a decision,” said Visam.
Population figures from the United Nations’ Department of Social and Economic Affairs give the 2010 figures for Maldivians aged between 60-64 at 5000. The potential addition of this group to the pension scheme could add Rf11.5 million per month to the government’s obligations under the 2009 Pensions Act – potentially adding Rf138 million (US$8.9 million) per year.
These figures are similar to those anticipated by Yoosuf. Mariyam Visam, Director General of the CMDA, also agreed that up to 5000 people may be added to the scheme as a result of such an amendment, although she added that it would depend on those registered as well as on other eligibility criteria.
Yoosuf claimed that the current economic environment was more conducive to the passage of the bill than in the past.
“The passage of the bill is appropriate now because the economy is picking up,” he said, “although not as fast as we want.”
Conversely, Visam raised concerns over the detrimental economic impact of lowering the age for pension eligibility.
“The economic activity of people between 60 and 65 years may be affected if they are offered an incentive not to work.”
According to the Department of National Planning’s ‘Household Income and Expenditure Survey 2009-2010′, 38493 people (28 percent) were unemployed in 2010.
The report highlighted that between 2006 and 2010 unemployment had increased by 20,000 – an increase of over 100 percent.
The UN’s figures estimate that the number of Maldivians over the age of 60 could be 25000 by 2015. This could potentially leave the government with Rf690 million per year in pension payments compared with the current outlay of Rf420 million per year, an increase of 64 percent.