Proposed amendments to the country’s pension system allowing workers to make early withdrawals from their retirement funds will compromise the entire scheme, the scheme’s regulatory body, the Capital Market Development Authority (CMDA), has warned.
CMDA Director General Mariyam Visam today told Minivan News that the proposed amendments to allow public and private sector staff to make early withdrawals from their pension schemes to cover costs of pilgrimages, home finance and starting businesses creates a “fundamental problem” that potentially could invalidate the program’s long-term sustainability.
The comments were made in response to Civil Service Commission (CSC) claims that a majority of public sector workers were in support of the proposed amendments to the Pension Act forwarded by Guraidhoo MP Ibrahim Riza – while also backing additional mechanisms for early withdrawals.
According to local media, the purposes by which early withdrawals could be made under the MP’s amendments include funding a Hajj pilgrimage, undertaking higher education, property building, seeking medical treatment abroad or establishing a businesses.
Sun Online has reported that the amendments would also allow individuals who had completed a contracted term or anyone elected to public office to withdraw funding to set up a business after their term was finished.
Low savings levels
CMDA Director General Visam said that the country’s pension system had been introduced in 2010 for public sector workers, with private sector employees being included in the scheme a year later.
With the system still “very new” to the Maldives, she claimed that the amount of savings available to the public would presently be very low, limiting payments that could be made at a time.
Visam claimed that any notion of allowing early withdrawals would create a “fundamental problem” for the future of Maldivian pensions, which requires long-term savings to help safeguard funds for the program.
“[Early withdrawals] serve to defeat the purpose of the whole system. By the time of retirement, a person is expected to have been making long-term savings so they will have decent benefits,” she said.
Visam added that a number of schemes were already in place in the Maldives to provide private funding opportunities for both private and public sector workers, while social security systems such as Aasandha were also available to cover medical costs at home or abroad.
She said that allowing for early withdrawals for these reasons would serve to be “detrimental” to the pension scheme, which would itself be vital for funding future investments in various sectors like infrastructure and education.
Public sector support
Speaking to Minivan News today, CSC Media Officer Ali Nizar said that since the introduction of the pensions program in 2010, civil servants had been required to pay the bulk of funds into the system compared to the private sector.
Nizar added that with a new bill being proposed in parliament on withdrawals, the CSC had sought to find out the views of public sector workers in some 80 ministerial and council administrations on whether they would support the amendments.
The majority of civil servants surveyed not only approved of the bill, but according to the CSC, public sector workers favoured further provisions, such as bringing the age of retirement down to 55, as well as allowing early withdrawals in areas of major expenditure such as funding the Umra pilgrimage.
Back in June last year, the CMDA raised concerns that a previously proposed amendment to reduce the eligible age for a basic pension from 65 to 60 years of age could damage the country’s economy, potentially adding MVR138 million (US$8.9 million) to the state budget.
The reduction of the age of eligibility from 65 to 60 years old was at the time seen as potentially increasing the number of those eligible to receive monthly pension payments by 33 percent.
Previously released UN figures estimate that the number of Maldivians over the age of 60 could be 25,000 by 2015. This could potentially leave the government with MVR690 million per year in pension payments compared with last year’s outlay of MVR420 million per year – an increase of 64 percent.