Dilip Raj Paudel's blog

Dormant Bank Deposits in Nepal: Balancing Property Rights and Public Interest

2026-04-05T21:18:00.001+06:00

Dormant Bank Deposits in Nepal: Balancing Property Rights and Public Interest

Recent public discussions in Nepal have been dominated by a sensitive and often misunderstood issue, the fate of funds lying idle in dormant bank accounts. Rumors suggesting that the government may “seize” such deposits have triggered public concern and skepticism. However, a closer examination reveals that the issue is not about confiscation, but rather about designing a balanced policy framework that safeguards individual property rights while allowing the productive use of idle financial resources.

In modern banking systems, dormant or inactive accounts are those that have not recorded any transaction for a prolonged period, often ranging from five to ten years. In Nepal, with the rapid expansion of financial inclusion and account ownership, the number of such dormant accounts has grown significantly. Many of these accounts belong to individuals who have migrated abroad, lost contact with the banking system, or, in some cases, passed away without their legal heirs claiming the funds.

This situation raises an important policy question: Should these funds remain indefinitely idle in the banking system, or can they be temporarily utilized for broader public benefit?

At the heart of this debate lies the principle of private property rights. Deposits held in bank accounts are unquestionably the legal property of individuals. Any attempt by the state to permanently appropriate such funds would not only violate constitutional guarantees but also undermine public trust in the financial system. Therefore, a confiscatory approach is neither legally defensible nor ethically acceptable.

However, the argument does not end there. Idle funds, by their very nature, represent unutilized economic potential. In a developing country like Nepal, where resources for infrastructure, social protection, and financial inclusion remain limited, the question of whether such funds can be responsibly mobilized becomes highly relevant.

International experience offers valuable insights. Countries such as the United Kingdom, Australia, and India have developed systems to manage unclaimed or dormant deposits. These systems are built on a common principle: the state may temporarily utilize such funds, but ownership always remains with the depositor. At any time, the original account holder—or their legal heirs—can reclaim the funds in full.

This “custodial model” strikes a careful balance between efficiency and rights. It ensures that idle money contributes to economic and social development, while fully preserving the legal claims of individuals.

In the context of Nepal, the issue becomes even more significant when considering deposits held in the accounts of deceased individuals. Due to weak coordination between the vital registration system and financial institutions, many such accounts remain active long after the account holder’s death. Often, legal heirs are either unaware of these funds or face procedural barriers in claiming them.

A well-designed policy could address this gap by linking banking data with national vital registration systems, automatically identifying deceased account holders, and notifying potential heirs. If, after a reasonable period, no claims are made, such funds could be transferred to a centrally managed “Unclaimed Deposit Fund.” Importantly, this transfer should not extinguish ownership rights but merely shift the funds into a custodial framework.

From a policy perspective, Nepal should consider adopting a transparent, accountable, and non-confiscatory model with the following features:

A clear legal definition of dormant accounts (e.g., no activity for 10 years)

Mandatory notification mechanisms to account holders and heirs

Integration with national ID and vital registration databases

Transfer of unclaimed funds to a regulated central fund

Guaranteed, time-unlimited right of refund upon legitimate claim

Utilization of funds for social security, infrastructure, or financial literacy programs

Such a framework would convert idle financial resources into productive capital without undermining public confidence in the banking system.

Nevertheless, safeguards are essential. Transparency, independent oversight, and efficient claim mechanisms must be at the core of any such policy. Without these, even a well-intentioned reform could face public resistance.

In conclusion, the debate on dormant bank deposits should move beyond fear and misinformation toward constructive policy dialogue. The real question is not whether the government should “take” people’s money, but how it can responsibly manage unclaimed resources while fully respecting ownership rights.

A simple guiding principle can help frame this policy:

The state may use the money, but it must never own it.

If Nepal can institutionalize this principle through sound legislation and governance, dormant deposits can be transformed from idle balances into instruments of inclusive development without compromising the trust of its citizens.

निष्क्रिय बैंक निक्षेप: सम्पत्ति अधिकार र सार्वजनिक हितबीच सन्तुलनको आवश्यकता

2026-04-05T21:17:00.001+06:00

हाल नेपालमा निष्क्रिय बैंक खातामा रहेको रकमको विषयमा व्यापक चर्चा भइरहेको छ। विशेषतः “सरकारले यस्तो रकम जफत गर्न सक्छ” भन्ने हल्लाले सर्वसाधारणमा चिन्ता र अन्योल सिर्जना गरेको छ। तर, यस विषयलाई गहिराइमा हेर्दा यो मुद्दा जफत (confiscation) को नभई सम्पत्ति अधिकारको संरक्षण गर्दै निष्क्रिय स्रोतको प्रभावकारी उपयोग कसरी गर्ने भन्ने नीतिगत प्रश्न हो।

आधुनिक बैंकिङ प्रणालीमा लामो समयसम्म कुनै कारोबार नभएका खाताहरूलाई निष्क्रिय (Dormant) वा अप्रयुक्त खाता भनिन्छ। नेपालमा वित्तीय समावेशीकरणको विस्तारसँगै यस्ता खाताहरूको संख्या उल्लेखनीय रूपमा बढेको छ। तीमध्ये धेरै खाताहरू विदेश गएका व्यक्तिहरूका, बैंकसँग सम्पर्क विच्छेद भएका वा कतिपय अवस्थामा मृत्यु भइसकेका व्यक्तिहरूका हुन्।

यस अवस्थाले एउटा महत्वपूर्ण प्रश्न उठाउँछ :

के यस्तो रकम अनिश्चितकालसम्म निष्क्रिय रूपमा बसिरहनु उचित हो, वा यसलाई सार्वजनिक हितमा उपयोग गर्न सकिन्छ?

यस बहसको केन्द्रमा “निजी सम्पत्ति अधिकार” रहेको छ। बैंकमा जम्मा गरिएको रकम व्यक्तिको कानुनी सम्पत्ति हो। राज्यले यस्तो रकम स्थायी रूपमा जफत गर्नु संवैधानिक तथा नैतिक दुवै दृष्टिले स्वीकार्य हुँदैन। यस्तो कदमले वित्तीय प्रणालीप्रति जनविश्वासमा गम्भीर असर पार्न सक्छ।

तर, अर्कोतर्फ, यस्ता निष्क्रिय रकमहरू आर्थिक दृष्टिले “Idle Capital” हुन्—अर्थात् प्रयोगमा नआएको स्रोत। नेपालजस्तो विकासोन्मुख देशमा, जहाँ पूर्वाधार, सामाजिक सुरक्षा तथा वित्तीय समावेशीकरणका लागि स्रोतको अभाव छ, यस्ता रकमलाई उत्पादनशील क्षेत्रमा परिचालन गर्ने सम्भावना पनि उत्तिकै महत्वपूर्ण हुन्छ।

अन्तर्राष्ट्रिय अभ्यासले यसमा स्पष्ट दिशा देखाएको छ। बेलायत, अष्ट्रेलिया र भारतजस्ता देशहरूले निष्क्रिय निक्षेप व्यवस्थापनका लागि सन्तुलित प्रणाली विकास गरेका छन्। यी प्रणालीहरूको मूल सिद्धान्त एउटै छ:

राज्यले यस्तो रकम अस्थायी रूपमा प्रयोग गर्न सक्छ, तर स्वामित्व सधैं निक्षेपकर्ताकै रहन्छ।

कुनै पनि बेला खाताधनी वा उनका हकवालाले दाबी गरेमा रकम पूर्ण रूपमा फिर्ता गरिन्छ।

यसलाई “custodial model” भनिन्छ, जसले दक्षता र अधिकारबीच सन्तुलन कायम गर्छ। यसले निष्क्रिय रकमलाई आर्थिक तथा सामाजिक विकासमा प्रयोग गर्न सकिन्छ, तर व्यक्तिको अधिकारमा कुनै हानि हुँदैन।

नेपालको सन्दर्भमा यो विषय झन् महत्वपूर्ण हुन्छ, विशेषतः मृत व्यक्तिहरूका खातामा रहेको रकमका कारण। हाल vital registration प्रणाली र बैंकिङ प्रणालीबीच समन्वय कमजोर हुँदा धेरै खाताहरू खाताधनीको मृत्यु पछि पनि सक्रिय रूपमा रहिरहेका छन्। धेरै अवस्थामा हकवालालाई यस्तो रकमबारे जानकारी नै हुँदैन वा प्रक्रिया जटिल हुन्छ।

यदि नीतिगत रूपमा सुधार गरियो भने:

बैंकिङ प्रणालीलाई vital registration सँग जोड्न सकिन्छ

मृत व्यक्तिको खाता स्वतः चिन्हित गर्न सकिन्छ

हकवालालाई जानकारी दिन सकिन्छ

दाबी प्रक्रिया सरल बनाउन सकिन्छ

यदि यति गर्दा पनि लामो समयसम्म कसैले दाबी नगरेको अवस्थामा, यस्तो रकमलाई “Unclaimed Deposit Fund” मा स्थानान्तरण गर्न सकिन्छ। तर, यसले स्वामित्व समाप्त गर्दैन, केवल व्यवस्थापनको ढाँचा परिवर्तन गर्छ।

नेपालका लागि उपयुक्त नीति ढाँचा निम्न हुन सक्छ:

निष्क्रिय खाताको स्पष्ट परिभाषा (जस्तै १० वर्ष कारोबार नभएको)

खाताधनी तथा हकवालालाई अनिवार्य सूचना दिने व्यवस्था

राष्ट्रिय परिचयपत्र तथा vital registration सँग एकीकरण

अप्राप्त रकमलाई केन्द्रीय कोषमा स्थानान्तरण

दाबी गर्दा समयसीमा बिना नै पूर्ण फिर्ता ग्यारेन्टी

रकमलाई सामाजिक सुरक्षा, पूर्वाधार तथा वित्तीय साक्षरता कार्यक्रमहरूमा प्रयोग

यसले निष्क्रिय रकमलाई उत्पादनशील स्रोतमा रूपान्तरण गर्नेछ र वित्तीय प्रणालीलाई अझ सुदृढ बनाउनेछ।

तर, यसका लागि पारदर्शिता, स्वतन्त्र निगरानी र प्रभावकारी दाबी प्रणाली अनिवार्य छन्। यी तत्वहरू बिना कुनै पनि नीति जनविश्वास प्राप्त गर्न सक्दैन।

अन्ततः, निष्क्रिय बैंक निक्षेपको विषयलाई हल्ला र भ्रमभन्दा माथि उठाएर नीतिगत बहसको रूपमा लिन आवश्यक छ। मूल प्रश्न सरकारको अधिकार होइन, जिम्मेवारी हो—व्यक्तिगत अधिकारलाई सम्मान गर्दै सार्वजनिक स्रोतको सदुपयोग कसरी गर्ने?

यस सन्दर्भमा एउटा सरल सिद्धान्त मार्गदर्शक बन्न सक्छ:

“राज्यले रकम प्रयोग गर्न सक्छ, तर त्यसको स्वामित्व कहिल्यै लिन सक्दैन।”

यदि नेपालले यही सिद्धान्तमा आधारित नीति अवलम्बन गर्न सकेमा, निष्क्रिय निक्षेपहरूलाई समावेशी विकासको प्रभावकारी साधनमा रूपान्तरण गर्न सकिन्छ तर जनविश्वासमा कुनै आँच नपुर्‍याई।

धन्यवाद !

The Role of the Employees Provident Fund in Contributory Pension and Social Security

2025-09-19T20:41:00.001+06:00

https://orcid.org/0000-0002-6201-8682

“The Role of the Employees Provident Fund in Contributory Pension and Social Security” Dr. Dilip Raj Paudel

Abstract

This paper examines the role of the Employees Provident Fund (EPF) in Nepal as a cornerstone of contributory pension and social security for its contributors. While the traditional non-contributory pension system has provided lifelong benefits to government servants and formal organized institution, it has also imposed a growing fiscal burden on the state. The enactment of the Pension Fund Act (2075) and subsequent reforms marked a turning point by institutionalizing a contributory model managed by the EPF. The paper traces the historical evolution of Nepal’s pension architecture, distinguishing between contributory and non-contributory schemes, and situates national reforms within broader global trends.

Despite progress, several challenges persist: limited coverage of informal sector workers, actuarial imbalances between contributions and benefits, inflationary pressures, investment risks, governance gaps, and weak member awareness. Comparative insights from Malaysia, South Korea, and India underscore the importance of institutional integration, diversified and sustainable investment strategies, digital service delivery, and strong actuarial governance.

The study argues that expanding EPF’s reach to informal workers, institutionalizing inflation-indexed benefits, and prioritizing pension literacy are critical for long-term adequacy and equity. Sustaining reforms further requires policy coherence, fiscal discipline, transparency, and inclusivity. Positioned at the center of Nepal’s evolving social protection system, the EPF can transform fragmented pension arrangements into a financially sustainable and socially inclusive framework.

keywords: Provident Fund, pension, Social security, Fiscal sustainability, social protection

1. Background

Social security is an integral part of a modern nation-state. A social security system plays a crucial role in mitigating the economic and social risks that arise in citizens' lives due to various reasons. In many countries, a contributory pension system is prioritized to ensure a minimum standard of living for individuals who lose their ability to work due to old age, unemployment, disability, maternity, illness, or workplace accidents.

In Nepal, government employees have long been provided with a budget-based pension facility. However, this has created a huge burden on the state's economy, as a result of which the need for a contributory system has increased. In this context, the Employee's Provident Fund (EPF) has emerged as a major institutional mechanism that is responsible for managing the contributory pension for all government employees (civil servants, Nepal Army, Nepal Police, Armed Police Force, special services, teachers) and employees of institutions and government supported/grant-receiving organizations appointed after July 16, 2019 (Shrawan 1, 2076). It is contributing to strengthening the social security system by institutionalizing the contributory pension scheme.

The Constitution of Nepal, 2072, under Article 35 of fundamental rights, guarantees every citizen the right to receive free basic health services from the state. Similarly, Article 34 (2) of the Constitution grants workers the right to contributory social security, and Article 43 grants the right to social security to the poor, helpless, disabled, helpless single women, and children, among others.

The current Fifteenth Plan has a vision of creating a sustainable social security system for all, an equitable society, and the foundation of a welfare state. It aims to make social security and protection sustainable, universal, and accessible to implement citizens' rights and strengthen citizens' trust in the state. The objectives of the 15th plan are to involve citizens in a mandatory and universal social security system, provide social protection to economically and socially marginalized and at-risk communities, and mitigate citizens' economic, social, environmental, and other risks through social security and protection. To achieve these objectives, the strategies adopted are to expand social assistance and protection programs to increase access, expand and universalize contributory social security schemes, and develop a tiered coordination and inter-governmental information system for social security, assistance, and protection.

Social security is a matter of global concern and management, and various international organizations, including the United Nations, have developed, promoted, facilitated, and set standards for such programs. To implement the Constitution of Nepal, periodic plans, and international treaties and agreements, the Government of Nepal has been running social security and protection programs for citizens in both formal and informal sectors. These programs are either contributory or non-contributory. In the context of Nepal, social security refers to the following:

• Cash and in-kind support or assistance provided to mitigate risks encountered during life.

• Programs run to provide easy access to social and economic services for poor citizens.

• Support programs provided to families to cope with disasters.

• Reservations, special services, and facilities that help marginalized and excluded citizens live a dignified life based on equality.

Out of Nepal's total population, about 20.7 million people are in the working-age population. Of this workforce, about 7.1 million are employed in some form, and about 900,000 people are fully unemployed. Of the approximately 7.1 million people employed, about 2.7 million are in the formal sector, and the remaining 4.4 million are in the informal sector. The formal sector includes government employees under the civil service, Nepal Army, Nepal Police, Armed Police Force, teachers, Nepal Special Service, and employees and workers working in public and private sector organized institutions.

Approximately 500,000 people enter the labor market in Nepal every year. Approximately 1,000 young people leave the country every day, and remittance income is 25.4% of the gross domestic product. 36.5% of the workforce is engaged in the formal sector, and the unemployment rate is 11.4%. The labor force participation rate is 38.5%, and the compulsory labor participation rate is 1.2 per thousand.

2. Social Security and Pension System

2.1 Definition of Social Security

Generally, social security is a system or arrangement that reduces or mitigates the risks, insecurity, and uncertainty that arise in a person's life due to various reasons. It aims to provide economic, social, and psychological support to people in situations such as illness, disability, unemployment, old age, maternity, or premature death. "Social security refers to the protection and support provided by the state or a concerned institution to citizens to ensure a minimum standard of living by reducing the risks arising from conditions such as illness, disability, unemployment, old age, or death".

The main objective of social security is to ensure a minimum standard of living for people, reduce inequality, and maintain social justice. This includes programs such as pensions, health insurance, unemployment benefits, disability benefits, relief for poor families, maternity benefits, and accident insurance. In summary, social security is a protective shield provided by the state or a concerned institution to protect citizens from the inevitable risks and problems of life.

According to the International Social Security Association (ISSA), 'social security' means any scheme or program established by legislation or other mandatory arrangement that provides protection, in cash or in kind, in the event of employment accidents, occupational diseases, unemployment, maternity, sickness, invalidity, old age, retirement, survivorship, or death. This can include benefits for children and other family members, health care, prevention, rehabilitation, and long-term care. It can also cover social insurance, social assistance, mutual benefit schemes, provident funds, and other arrangements that form part of a country's social security system according to national law or practice.

According to the International Labour Organization (ILO), social security is the protection provided to an individual to maintain a minimum standard of living in the event of social and economic risks.

Social security is an essential cornerstone of a modern state system. The contributory pension system is considered very effective in mitigating risks such as illness, unemployment, old age, disability, and death that arise in citizens' lives. In Nepal, the discussion and practice of a contributory system are also intensifying to make the social security system sustainable and equitable. In this context, the role of the Employee's Provident Fund (EPF) seems to be very important.

Pension: Pension is an integral part of social security. It can be defined as an amount provided to sustain a person's livelihood after retirement from service. A pension is a reward given regularly on a monthly basis to a person and their family after they retire from regular service, so that their livelihood is simple, easy, and effective after they have dedicated their productive life to the service of the nation.

2.2 Global Trends

Social security and pension systems are managed differently in various countries around the world.

a) Contributory Social Insurance in Developed Countries: Contributory social insurance is prevalent in Europe, North America, and some Asian countries. Operated by the contributions of both employees and employers, these systems ensure long-term financial security in old age, disability, unemployment, and death. For example, in countries like Germany, Japan, and South Korea, social insurance reduces the financial burden on the state and ensures pension benefits for individual contributors.

b) Mixed Models in Developing Countries: Developing countries have adopted a mixed model to bring the population working in the informal sector under the social security umbrella. In this model, an attempt is made to provide social security to everyone by combining contributory and state-funded (non-contributory) systems. For example, in India, the Philippines, and Thailand, minimum pension and health insurance facilities are provided for workers in the informal sector.

c) Pension Reform and Contributory System: Many countries have transitioned from a noncontributory pension system to a contributory system during pension reform. The main objective is to ensure fiscal sustainability, management of the aging population, and a balance between benefits and contributions. According to studies by the World Bank and ISSA, the contributory system contributes to the long-term stability of the social security system.

2.3 Contributory vs. Non-Contributory Pension Systems

Social security and pension systems can be primarily classified into two types:

a) Non-Contributory Pension: In this system, the state fully funds the pension amount, and direct contributions are not taken from the employee or employer. The objective is to ensure a minimum standard of living for all citizens, especially to guarantee social security in old age or disability. The traditional pension provided to government employees in Nepal is an example of this type. In this system, retired employees receive a lifelong pension benefit, and everyone gets equal opportunities from a social justice perspective. However, challenges of this system include the high burden on the state budget, financial sustainability issues with increasing population growth, and the difficulty of covering private sector and informal sector workers.

b) Contributory Pension: The contributory pension system is operated by the contributions of both employees and employers and is considered a long-term financially sustainable system.

Both the employee and the employer contribute a certain percentage of the monthly salary. The fund is collected and benefits are provided for the member's old age or other social security needs in the future. Its objective is to ensure long-term fiscal sustainability and strengthen individual savings/retirement security. In this system, benefits are distributed according to individual contributions, the direct financial burden on the state is reduced, and it is easy to include private sector and informal sector workers. However, there are challenges such as low benefits in old age if the initial contribution rate is low, the impact of economic instability or investment risks on future benefits, and the need to ensure member awareness and regular contributions.

Comparison of Contributory and Non-contributory

Feature	Non-Contributory Pension	Contributory Pension
Funding	Fully by the state	Employee + Employer contributions
Sustainability	Dependent on the state budget	Ensures long-term financial sustainability
Benefit Distribution	Equal for all	Varies according to contributions
Inclusivity	Mostly limited to the government sector	Can be extended to the private, semi-governmental, and informal sectors
Challenges	Financial pressure, aging population	Low initial contributions, investment risks, need for awareness

3. Social Security and Pension System in Nepal

According to the constitutional provisions, the state should benefit the non-earning population through non-contributory social security schemes and the earning population through contributory social security schemes. Currently, the social security programs implemented in Nepal can be classified as follows based on their fundamental characteristics:

a) Non-Contributory Social Security Schemes

• Social Assistance: Social assistance has been provided for individuals and families who are economically and socially disadvantaged or need special care or do not have access to basic services. This includes cash and in-kind assistance provided by the state, social security allowances, scholarships, the mother security program, and the day-care meal program. Citizens do not have to contribute to receive this assistance. The population belonging to a specified class, such as senior citizens, single women, people with full disabilities, endangered ethnicities, Dalits, and children, have been receiving benefits under this.

• Non-Contributory Social Security Program: This includes benefits such as pensions, gratuities, medical treatment, and children's allowances provided by the government or employers to employees working in government or public bodies. Employees do not have to make any financial contributions to receive this assistance.

b) Contributory Social Security Schemes

• Contributory Social Security Program: This includes contributory provident fund, pension, and other social security schemes. Employees and workers engaged in income generating activities in the government, formal, and informal sectors must contribute periodically to receive these benefits.

3.1 Social Security

The social security allowance, which started with the Government of Nepal's decision in 1994

(B.S. 2051) to give a monthly allowance of Rs. 100 to people aged 75 and above, is considered a

Cash Transfer program at the international level and is sometimes called a Universal Pension Scheme. The amount of this social security allowance and the distribution system have been continuously improved to make them more effective by increasing the amount and improving the distribution system.

In India, there is a scheme called Indira Gandhi National Old Age Pension (IGNOAPS). Under this scheme, individuals aged 60 and above who are below the poverty line (BPL) receive a monthly allowance of Rs. 200 for those aged 60 to 79 and Rs. 500 for those aged 80 and above. However, when providing this amount, a person's income certificate must also be submitted. In Nepal, however, both the rich and the poor receive the allowance.

The system of providing cash payments to individuals at the local level with a receipt has been improved to make payments through the individual's bank account. The allowance, which started at Rs. 100, has been increased, and on the other hand, the age limit for receiving the benefit has also been improved to increase the scope of beneficiaries. The social security programs implemented by the Government of Nepal are as follows.

Details of recipients of social security allowances by target group, rate, and total number

S.N.	Details	Rate	2077/78	2078/79	2079/80	2080/81	2081/82
1	Senior Citizen (70 years)	-	1,314,201	1,322,315	1,627,921	1,689,196	1,660,370
2	Senior Citizen (Dalit 60 years)	-	186,047	191,846	152,801	156,161	151,825
3	Senior Citizen (Single Woman 60 years)	-	280,648	276,493	212,670	181,863	173,560
4	Senior Citizen (Karnali 60 years)	-	20,262	21,068	16,622	16,480	17,159
5	Widow Women	-	350,436	360,502	361,161	389,210	406,900
6	Disabled 'A' Category	-	55,059	63,343	66,281	68,306	68,861
7	Disabled 'B' Category	-	105,051	128,223	138,716	145,517	149,102
8	Child (Specified Area)	-	699,855	806,257	761,093	800,036	724,861
9	Dalit Child	-	421,343	410,120	341,468	360,311	321,759
10	Endangered Indigenous Nationalities	-	22,544	22,538	22,208	22,393	21,992
Total	-	-	3,455,446	3,602,705	3,700,941	3,829,473	3,706,389

Source: Economic Survey, 2082

Details of Social Security Programs operated by various bodies

a) Government of Nepal, Province Government, and Local Governments

1. Non-contributory pension, gratuity, leave, and medical treatment facilities for employees.

2. Contributory pension, gratuity, provident fund, and term life insurance for employees.

3. Social assistance programs for senior citizens, single women, disabled people, endangered ethnicities, Dalit children, and children from specified areas.

4. Health insurance program for all Nepalis.

b) Employee's Provident Fund (EPF)

Preamble of the Act: The preamble of the Employee's Provident Fund Act, 2019, states that the EPF was established to manage provident funds, pension funds, and other social security funds for employees of the Government of Nepal and organized institutions, other employees, and self-employed individuals.

Objectives of the Fund: To manage the provident fund, pension fund, and other social security funds for employees of the Government of Nepal, organized institutions, and other institutions, and self-employed individuals.

o Schemes operated by the Fund:

1. Provident Fund Scheme.

2. Pension and Gratuity Scheme.

3. Social Security Scheme (Non-contributory):

▪ Contributor Funeral Grant Scheme.

▪ Contributor Accident Compensation Scheme.

▪ Maternity and Childcare Scheme.

▪ Contributor Healthcare Scheme.

c) Citizen Investment Trust

Preamble of the Act: The Citizen Investment Trust was established with the objective of encouraging the general public to save capital for the economic development of the country, increasing investment opportunities, operating retirement funds and social security programs, and bringing dynamism to the capital market.

o Schemes operated by the Fund:

▪ Term Life Insurance Program.

▪ Gratuity Scheme.

▪ Employee Savings Growth Retirement Scheme.

▪ Contributor Housing Program.

▪ Pension Scheme.

d) Social Security Fund

Objective of the Act: According to the Contributory Social Security Fund Act, 2074, the objective is to ensure the right to contributory social security for workers and provide social security to contributors. The Social Security Fund was established to operate and manage this.

o Schemes operated by the Fund:

▪ Healthcare, Health, and Maternity Protection Scheme.

▪ Accident and Disability Benefit Scheme.

▪ Dependent Family Security Scheme.

▪ Old Age Security Scheme.

▪ Pension Scheme.

e) Health Insurance Board

Objective of the Act: According to the Health Insurance Act, 2074, the objective is to protect the right of citizens to receive quality health services, mitigate the financial risk of the insured through prepaid health insurance, and enhance the efficiency and accountability of health service providers to ensure easy access to health services for all citizens. The Health Insurance Board was established to operate and manage this.

o Schemes operated by the Fund:

▪ Promotional services such as disease, nutrition education, behavior change, and psychosocial counseling.

▪ Immunization, family planning, etc.

3.2 Development of Pension System in Nepal

The initial history of the pension system in Nepal is linked to global events. Contributory pension was first started in Germany during the time of Bismarck in 1883, and it was also implemented in America in 1935. Provident fund, gratuity, and pension are considered key elements of social security.

The pension system in Nepal is believed to have started when the then Prime Minister Shree Teen Chandra Shamsher arranged for a fixed annual allowance (Khanagi) for Nepali soldiers who returned from World War I with injuries.

In Nepal, the Military Fund was established for the Nepal Army in 1934 (B.S. 1991), and the provident fund system was started for civil servants in 1944 (B.S. 2001). The management of the teachers' provident fund started in 1979 (B.S. 2036).

The pension system in Nepal also started with the provision of pension for soldiers retiring from the Nepal Army. On August 29, 1941 (Bhadra 17, 1998), on the occasion of his birthday, the then Prime Minister Shree Teen Juddha Shamsher announced that soldiers in military service would receive one-fifth (1/5) of their salary as a lifelong pension. For civil servants, on November 29, 1942 (Mangsir 14, 1999), a Two-Stamp Sanad was issued, initiating a provision to give one-sixth (1/6) of the position's salary as a pension to employees who had completed 25 years of service. The pension system for teachers started in 2004 (B.S. 2061).

To manage the increasing expenses from the non-contributory pension system, the Government of Nepal issued the "Pension Fund Act, 2075" for the management of contributory pension. According to a decision of the Government of Nepal's Council of Ministers on July 31, 2019

(Shrawan 16, 2076), the Employee's Provident Fund (EPF), established under the Employee's Provident Fund Act, 2019, was designated as the body responsible for operating the pension fund by using the authority granted by Section 24 of the Pension Fund Act, 2075. A notice to this effect was published in the Nepal Gazette on August 18, 2067 (B.S.).

According to a decision at the ministerial level on July 5, 2020 (Ashad 22, 2077), the responsibility for operating the fund for the contributory pension of employees working at the local level was given to the Employee's Provident Fund, and the Ministry of Finance wrote to the Ministry of Federal Affairs and General Administration on July 12, 2020 (Ashad 28, 2077) to make and implement a law for this. According to this, a system has been implemented since July 16, 2019 (Shrawan 1, 2076), where newly appointed government employees contribute 6.0% of their salary, and the government and employer add another 6.0%, for a total of 12.0% contribution. In the context of teachers, the management of a contributory pension has been included since April 14, 2025 (Baisakh 1, 2082).

The provision of a monthly social security allowance of Rs. 100 for people aged 75 and above since 1994 (B.S. 2051) is also considered a universal pension. Currently, the social security allowance provided by the state has been increasing. This system is being continuously improved by updating it to international standards.

Although the pension system for government employees is paid according to clear rules, an attempt has been made to start a pension system for the private sector through the Social Security Fund, but the time to receive such a pension has not yet been reached. However, challenges in the pension system are increasing with the total expenditure and the growth in the number of employees.

The current social security and pension system in Nepal can be divided as follows:

a) Non-Contributory Pension for Government Employees

After the government service period, employees are provided with a lifelong pension benefit. The entire pension amount is funded directly from the state's financial resources. Retired employees are ensured a secure life and long-term financial security after completing their service. According to current data, government pension expenses account for more than 15% of the budget, and with the growing aging population, the direct financial burden on the state is likely to increase further in the future. The system is mainly limited to the government sector, and it is difficult to include workers from the private and informal sectors, posing a challenge to financial sustainability.

b) Contributory Pension for Government Employees

According to the decision of the Government of Nepal on July 31, 2019 (Shrawan 16, 2076), the

Employee's Provident Fund was assigned the responsibility for operating and managing the pension fund as per the Pension Fund Act, 2075. Accordingly, the fund has been managing the pension fund for employees of the Nepal Civil Service, Nepal Army Service, Nepal Police Service,

Armed Police Force, Nepal, and Nepal Special Service appointed since July 16, 2019 (Shrawan 1, 2076), and since April 14, 2025 (Baisakh 1, 2082), teachers have also been included in the contributory pension fund.

c) Contributory Social Security for the Private Sector

Traditionally, private sector workers did not have a systematic pension facility. With the establishment of the Employee's Provident Fund (EPF), Citizen Investment Trust (CIT), and Social Security Fund (SSF), and the start of various contributory schemes, private sector workers have started to gain access to long-term savings and pensions.

In this system, the Employee's Provident Fund(EPF) manages the provident fund, pension, and various types of retirement funds, including non-contributory and contributory social security, for employees working in government, semi-government, government institutions, government bodies, government grant-receiving organizations, and the formal sector. It also provides financial facilities and non-contributory social security benefits to members.

The Citizen Investment Trust (CIT) also operates savings programs and retirement funds for employees and citizens in the government, non-governmental, and private sectors, and provides financial facilities to members. The Social Security Fund (SSF) operates contributory social security programs for the private and informal sectors and also provides financial facilities to members.

Although the benefits are ensured based on contributions, the direct financial pressure on the state is reduced, and social security is expanding to the informal and semi-governmental sectors, factors such as the difficulty of ensuring initial awareness and regular contributions and the limited plans to include informal sector workers are still challenging.

4. Role of Employee Provident Fund

The Employee Provident Fund (EPF) was established in 1962 (B.S. 2019). In its initial phase, it targeted only government employees and workers of public institutions. Over time, the fund has expanded its services to the private sector, semi-governmental institutions, and public enterprises. The EPF has built the basic structure of the formal social security system in Nepal by operating a contributory provident fund and pension system. It is considered an institutional milestone for promoting organized savings and post-retirement social security in Nepal.

The legal basis of the EPF is the Employee Provident Fund Act, 2019 (1962 AD), which has been amended and implemented over time. The objective is to manage the provident fund, pension fund, and other social security funds for employees of the Government of Nepal, organized institutions, other institutions, and self-employed individuals. The primary responsibility of the fund is to manage the provident fund using the authority granted by the Employee Provident Fund Act, 2019 (1962 AD). Similarly, EPF has responsibilities to manage the pension fund under the Pension Fund Act. 2019 (2075 BS). The scope of the fund is as follows:

4.1 Provident Fund Scheme:

a) Employees who must be mandatorily affiliated with the Provident Fund

• Civil servants, military, police, armed police of government service.

• Government agency, Institutions owned or controlled by the Government of Nepal

• Employees of organized institutions.

• Employee of University and Teachers of community schools.

b) Employees who can voluntarily affiliate with the Provident Fund

• Employees of Private institutions.

• Teachers of Private schools.

• NGO/INGO

• International Agency

• Informal Sector, Self-business, Professionals etc.

4.2 Pension Fund Scheme:

a) Employees who must be mandatorily affiliated with the Pension Fund

• Civil Service

• Nepal Police Service.

• Armed Police Force Nepal.

• Nepal Special Service.

• Government Teachers (included since April 2025/Baisakh 2082).

b) Employees who can be affiliated with the fund by policy decision, or law and agreement

• Employees working under provincial and local governments.

• Institutions owned or controlled by the Government of Nepal or receiving regular grants from the Government of Nepal.

• Government agency, Institutions owned or controlled by the Government of Nepal

• Employees of organized institutions.

• Employees of University

Besides this, according to the directive of the Ministry of Finance, Government of Nepal, dated August 4, 2020 (Shrawan 19, 2077), public bodies owned or controlled by the Government of Nepal or receiving regular grants from the Government of Nepal have been operating contributory schemes in accordance with the provisions of the "Regulations for the Operation of the Pension and Gratuity Fund for Public Body Employees, 2081" after signing an agreement with the fund.

The following schemes are included:

a) Contributory Lifelong Pension Scheme.

b) Contributory Periodic Pension Scheme.

c) Contributory Gratuity Scheme.

In addition, the fund can operate and manage the following special schemes for public bodies:

a) Lifelong pension facility.

b) Gratuity facility.

c) Other facilities.

4.3 Social Security Benefits:

The following provisions of social security benefits provided to the contributors of EPF. These schemes are non-contributory scheme, benefited by the EPS's welfare fund.

a) Funeral Grant Scheme: If a contributor dies during their service, a funeral grant of Rs. 40,000.00 (forty thousand rupees) can be paid to their rightful heir.

b) Maternity and Childcare Scheme: If a contributor or their wife gives birth, a maternity and childcare benefit of Rs. 7500.00 (seven thousand five hundred rupees) per delivery, up to a maximum of fifteen thousand rupees during the service period, can be paid to them.

c) Accident Compensation Scheme: If a contributor dies or becomes completely disabled in an accident during their service, an accident compensation of Rs. 200000.00 (two hundred thousand rupees) can be paid to the contributor or their rightful heir.

d) Healthcare Scheme:

• 1) Ordinary Diseases: For ordinary diseases for which a contributor or their spouse has been hospitalized for treatment, a cost of up to one hundred thousand rupees per year can be reimbursed to the contributor, their spouse, or their rightful heir.

• 2) Fatal Diseases: For fatal diseases for which a contributor or their spouse has been hospitalized for treatment, a cost of up to one million rupees during the service period can be reimbursed to the contributor, their spouse, or their rightful heir.

e) Other facilities: The fund also offers various facilities, such as share facilities and housing projects in the projects it has invested in.

4.4 Financial Benefits: The following provisions of loan or financial benefits provided to the contributors of EPF. These schemes are as given below:

a) Special Loan (90% Loan) : In view of the financial needs of contributors, the Fund has been providing Special Loan facilities since 2000 AD (2057 B.S.). Contributors who have regularly deposited to the Fund for at least two years are eligible to utilize up to 90 percent of their accumulated savings as a loan.

This loan facility can be obtained by being physically present at the Fund’s Thamel Office, Service Center Lagankhel, Service Center Singha Durbar, as well as at all branch offices and service centers across the country. Since May 2020 (Jestha 2077 B.S.), contributors have also been able to apply for the Special Loan online, with the approved amount deposited directly into their respective bank accounts.

b) House Loan: The House Loan Facility enables contributors to meet key financial needs such as constructing a house, purchasing a house, or adding additional floors. Contributors with at least two years of regular deposits and a minimum of two years of service remaining before retirement are eligible. The maximum loan limit is based on the contributor’s remaining service period and collateral valuation—up to ten years’ salary scale for those with less than ten years of service left, and up to fifteen years’ salary scale for those with more, with an overall ceiling of NPR 10 million. Collateral must be land or house registered in the name of the contributor, spouse, or jointly in both names within the area specified by the Fund.

c) Education Loan: The Education Loan Facility allows contributors to finance higher education for themselves, their spouse, or their children. Contributors with at least two years of regular deposits and a minimum of two years of service remaining before retirement are eligible to apply. The maximum loan limit is determined by the contributor’s remaining service period and collateral valuation—up to ten years’ salary scale if less than ten years of service remain, and up to fifteen years’ salary scale if more, with an overall ceiling of NPR 4 million. The lower of the salary-based calculation or the collateral valuation shall apply as the maximum limit. Collateral must consist of land or house property registered in the name of the contributor, spouse, or jointly in both names, and located within the area specified by the Fund.

d) Esay Loan Facility: Fund. This Loan Facility is provided to contributors for social activities and other unforeseen needs. Eligible contributors must have at least two years of regular deposits with the Fund and a minimum of two years of service remaining before retirement. The maximum loan limit is based on the contributor’s remaining service period and collateral valuation—up to ten years’ salary scale if less than ten years of service remain, and up to fifteen years’ salary scale if more, with an overall ceiling of NPR 6 million. The lower of the salary-based calculation or collateral valuation will apply as the maximum limit. Collateral must consist of land or house property registered in the name of the contributor, spouse, or jointly in both names, and located within the area specified by the Fund.

e) House Renovation Loan Facility: The House Renovation Loan Facility supports contributors in financing the repair and maintenance of their houses. Eligible contributors must have at least two years of regular deposits and a minimum of two years of service remaining before retirement. The loan ceiling is determined based on the contributor’s remaining service period and collateral valuation—up to ten years’ salary scale if less than ten years of service remain, and up to fifteen years’ salary scale if more. The lower of the salary-based calculation or the collateral valuation shall apply, with an overall maximum limit of NPR 4 million. Collateral must consist of house or land property located within the area specified by the Fund and registered in the name of the contributor, spouse, or jointly in both names.

f) Land Purchase Loan Facility: It enables contributors to purchase land within the area specified by the Fund. Contributors must have at least two years of regular deposits and a minimum of two years of service remaining before retirement to be eligible. The maximum loan amount is determined on the basis of the remaining service period and collateral valuation—up to ten years’ salary scale for those with less than ten years of service remaining, and up to fifteen years’ salary scale for those with more. The lower of the salary-based calculation or the collateral valuation shall apply, with an absolute ceiling of NPR 10 million (one crore). Collateral must consist of land registered in the name of the contributor, the spouse, or jointly in both names, and located within the Fund’s designated area.

5. Challenges

5.1 Scope of the Informal Sector

Approximately 80% of Nepal's labor market is in the informal sector (ILO, 2022). However, their participation in EPF or other contributory social security schemes is minimal. This creates a problem of exclusion in social security. The legal framework and incentive mechanisms to bring the informal sector into formal fund schemes are still weak.

• The majority of informal sector workers are not included in the pension system.

• This creates inequality in social security coverage.

• Solution: Adopt a mixed model and policies that ensure membership and contributions for informal sector workers.

5.2 Imbalance between Contribution Rates and Benefits

• Low initial contribution rates result in low pension amounts in old age. It is challenging to maintain an actuarially balanced relationship between the contribution rate and benefits in schemes like the EPF and Contributory Pension Fund for a long time.

• A balance between contribution and benefit is necessary to ensure maximum benefits.

• Solution: Improve the contribution and benefit structure through an actuarial study.

• Excessive benefit distribution can make the fund unstable.

• It can also cause dissatisfaction among contributors. For this, regular actuarial valuation and policy reforms to balance contributions/benefits are necessary.

5.3 Inflation and Demographic Changes

• Inflation: The savings made by contributors can lose their real value in the long term. The benefit amount may find it difficult to sustain the standard of living. Inflation reduces the real value of pension benefits.

• EPF and other institutional structures face challenges of administrative efficiency, transparency, and accountability.

• Delays in service delivery, limited use of digital systems.

• Solution: Digital systems, regular audits, transparent and accountable structure.

5.5 Investment Risk: The challenge of investing collected funds in a secure yet profitable manner. Questions about transparency in investment management.

5.6 Lack of Awareness: Members do not have sufficient information about the schemes.

5.7 Policy Ambiguity: Lack of coordination among various bodies.

6. Prospects for Reform and Policy Recommendations

Although Nepal's contributory pension and social security system has achieved significant milestones, some reforms are necessary to ensure long-term financial stability, inclusion, and administrative efficiency.

6.1 Expanding Coverage to the Informal Sector

• Approximately 80% of Nepal's labor market is still in the informal sector. To include them in contributory funds like the EPF, flexible and attractive contribution systems should be adopted for informal sector workers.

• Voluntary Provident Fund schemes for self-employed and small entrepreneurs should be made attractive.

• Incentives such as matching contributions (partial contribution from the government or employer) can be implemented.

• Access can be increased for rural and informal workers by using digital payment systems (mobile wallets, QR-based payment gateways).

• Millions of workers in the informal sector are still not included in the pension system.

• Suggestions:

o Policy to include informal sector workers in contributory schemes.

o Ensure initial contributions through subsidies and incentives.

o Awareness campaigns and cooperation with local bodies.

6.2 Institutional and Policy Integration

• Integrate the structure and experience of the EPF into the overall social security policy. In the long term, the EPF can be used as a pillar institution to develop an integrated and comprehensive social security system.

• Institutional consolidation can be increased in Nepal by learning from international practices (e.g., South Korea's National Pension Service, Malaysia's EPF).

• Bring workers from the private, semi-governmental, and informal sectors under a single social security umbrella.

• Policy advice, data, and actuarial studies to improve schemes.

6.3 Technical Improvements

• Digitalization: Digitize member records, and promote contributor-centric services through self-service online portals and mobile apps.

o Manage member data, contributions, and benefits through digital means.

o Transparency through real-time tracking and online services.

6.4 Improving Investment Strategies

• Diversify the investment portfolio (infrastructure bonds, green investments, PPP projects). Long-term investment in sectors such as capital market, infrastructure, and renewable energy.

• Ensure long-term sustainability by adopting the concept of risk-adjusted returns. Use risk management tools.

• Priority can be given to ESG (Environmental, Social, Governance) based investment standards.

• A diversified portfolio to ensure long-term financial stability.

• Risk assessment and periodic auditing.

6.5 Measures to Ensure Long-Term Sustainability

• Regular actuarial valuation to assess the balance between contributions and benefits.

• Protect the real value of the benefit amount through inflation indexing.

• Improve institutional governance: transparency, accountability, anti-corruption measures.

• Awareness campaigns and financial literacy programs to increase member participation.

• Balance between contribution rate and benefit ratio.

• Budget planning and risk management framework.

• Ensure periodic policy review and improvement.

7. Conclusion

A contributory pension is essential for building a sustainable social security system in Nepal. The development of the social security and pension system in Nepal is extremely necessary to ensure long-term financial sustainability and inclusivity. The contributory pension system works as an important measure to ensure long-term financial stability and reduce the burden on the government budget. While the non-contributory pension system is creating a burden on the state's economy, the contributory pension scheme started by the Employee's Provident Fund is an important step toward sustainability.

The Employee Provident Fund (EPF) is established as a major pillar of contributory pension and social security in Nepal. It has provided a means to protect millions of workers in the government, semi-government, and private sectors from old age and other social risks. This system can be made even stronger through the cooperation of not only the EPF but also the government and other stakeholders. Efforts to cover the informal sector, strengthen investment, and provide transparent services to members can make this institution the backbone of Nepal's social security system. However, ensuring long-term sustainability, extensive coverage, and a balance of benefits and contributions is crucial.

References

Asian Development Bank (ADB). (2020). The Social Protection Indicator for Asia. Manila: ADB.
Barr, N., & Diamond, P. (2008). Reforming pensions: Principles and policy choices. Oxford University Press.
Government of Nepal, Ministry of Finance (MoF). (2022). Economic Survey 2021/22. Kathmandu.
Holmes, R., et al. (2019). A social protection system for Nepal: Review and Recommendations. ODI.
International Labour Organization (ILO). (2017). World Social Protection Report 2017–19. Geneva: ILO.
International Labour Organization (ILO). (2022). Social protection for the informal economy in Nepal. Geneva: ILO.
International Social Security Association (ISSA). (2020). Social Security Programs Around the World. Geneva: ISSA.
Palacios, R., & Robalino, D. (2020). Pensions in the COVID-19 era: Global challenges. World Bank Policy Note.
Pension Fund Act, 2019 (Nepal). Government of Nepal.
World Bank. (2005). Old-Age Income Support in the 21st Century: An International Perspective on Pension Systems and Reform. Washington, DC: World Bank.

बैंक तथा वित्तीय संस्था सम्बन्धी ऐन (बाफिया) २०७३ को संशोधन प्रस्तावले अवकाश कोषलाई पर्न सक्ने प्रभाब

2025-06-23T07:24:00.003+06:00

हाल अर्थ समितिमा छलफलरत बैंक तथा वित्तीय संस्था सम्बन्धी ऐन (बाफिया) २०७३ को संशोधन प्रस्तावले सञ्चय कोष (EPF), नागरिक लगानी कोष (CIT), र सामाजिक सुरक्षा कोष (SSF) जस्ता विशेष ऐनअन्तर्गत स्थापित संस्थाहरूको लगानी अधिकार र दायरालाई अस्थिर बनाउने खतराको संकेत गरेको छ।

१. अन्योलता सिर्जना भएको पृष्ठभूमि

• राष्ट्र बैंकको पूर्व स्वीकृति प्रणाली हटाइएको छ।

• एकभन्दा बढी बैंकमा लगानी गर्न प्रतिबन्ध र एक बैंकमा १%भन्दा कम चुक्ता पूँजीसहितको लगानीको सर्त राखिएको छ।

• यस्तो व्यवस्था प्रमुख लगानीकर्ता–प्रर्वधकको भूमिका निर्वाह गर्दै आएका सार्वजनिक कोषहरूका लागि अव्यवहारिक हुन सक्छ।

२. EPF, CIT, SSF का विशेषता

यी संस्थाहरू अन्य साधारण व्यवसायी वा कम्पनीसरह मान्न सकिन्न:

• सञ्चय कोष सार्वजनिक सेवा कर्मचारीहरूको अनिवार्य योगदान संकलन गर्ने सामाजिक सुरक्षाको प्रमुख निकाय हो।

• नागरिक लगानी कोष दीर्घकालीन लगानीबाट सामाजिक विकासमा आधारित प्रतिफल प्रदान गर्ने उद्देश्य बोकेको निकाय हो।

• सामाजिक सुरक्षा कोष निजी क्षेत्रका श्रमिकहरूका लागि योगदानमा आधारित बहु-शाखीय सामाजिक सुरक्षा सुनिश्चित गर्ने संस्थागत संरचना हो।

३. नीतिगत असङ्गति र संभावित असरहरू

• यदि संशोधन यथावत् रह्यो भने, सार्वजनिक कोषहरूको पोर्टफोलियो विविधिकरणमा बाधा पुग्नेछ।

• एकल बैंकमा मात्र १% भन्दा कम चुक्ता पूँजीको सर्त राख्दा, यी कोषहरूको प्राप्य प्रतिफल घटाउने सम्भावना बढ्छ,जुन सामाजिक सुरक्षा योजनाको दीर्घकालीन टिकाउमा असर गर्छ l

• राष्ट्र बैंक जस्तो नियामक निकायको पूर्वअनुमतिलाई हटाएर सिधा निषेधात्मक सीमा तोक्दा, सार्वजनिक कोषको स्वायत्तता र रणनीतिक लगानी क्षमता बाधित हुन्छ।

४. प्रस्तावित सुधार (Policy Positioning)

• विशेष ऐनअन्तर्गत स्थापित संस्थाहरूलाई अन्य व्यवसायी वा कम्पनीसरह नठान्ने र तिनीहरूको लगानी नीति सम्बन्धी व्यवस्थालाई मौलिक ऐनमा आधारित रूपमा निर्दिष्ट गर्ने छुट दिनुपर्ने।

• आवश्यक भएमा अर्थ मन्त्रालयसँगको सहकार्यमा लगानी जोखिमको मूल्यांकन र गभर्नेन्स मापन मापदण्ड तय गर्न सकिन्छ, न कि सिधा निषेध।

• संसदको अर्थ समितिमा यी संस्थाहरूका प्रतिनिधिहरूलाई औपचारिक छलफलमा बोलाउने र प्रभाव मूल्याङ्कन (Impact Assessment) सहित नीति सिफारिस गर्ने प्रक्रिया अवलम्बन गर्नुपर्छ।

नेतृत्व कमजोर हुँदा अनुयायीमा पर्ने प्रभाव: एक विश्लेषण

2025-06-23T07:10:00.001+06:00

नेतृत्व संस्था, समाज वा राष्ट्रको मेरुदण्ड हो। सक्षम नेतृत्वले नीतिगत स्पष्टता, कर्मचारी प्रेरणा, र सेवा प्रवाहमा गुणस्तर ल्याउँछ भने कमजोर नेतृत्वले अव्यवस्था, अन्योलता र असन्तुष्टि जन्माउँछ। आजको सन्दर्भमा यो विषय अझ महत्वपूर्ण बनेको छ, जहाँ सार्वजनिक क्षेत्रदेखि निजी निकायसम्म नेतृत्व संकट देखिन थालेको छ।

१. मनोबलमा गिरावट

जब नेतृत्व प्रेरणादायी हुँदैन, अनुयायीहरूमा निराशा र अस्थिरता पैदा हुन्छ। नेताले आफ्ना कर्मचारीहरूलाई मूल्यांकन नगर्दा उनीहरूको कामप्रतिको लगाव घट्छ। अन्ततः कार्यसम्पादनमा गिरावट आउँछ।

उदाहरण: जब कुनै निकायमा प्रमुखले कर्मचारीको योगदानको कदर नगरी मनपरी निर्णय गर्छन्, तब दक्ष जनशक्ति पलायन हुन थाल्छ।

२. दिशाहीनता र रणनीतिक असमझदारी

कमजोर नेतृत्वले स्पष्ट उद्देश्य दिन सक्दैन। यसले टोलीमा दिशाहीनता पैदा गर्छ। कर्मचारीहरूले के गर्नुपर्छ, कसरी गर्नुपर्छ भन्ने कुरामा अन्योल अनुभव गर्छन्।

सन्दर्भ: धेरैजसो सार्वजनिक कार्यालयहरूमा नीति र कार्यान्वयन बीचको दूरीको मुख्य कारण नेतृत्वको दूरदृष्टिको कमी हो।

३. भरोसा र पारदर्शिताको संकट

नेतृत्व पारदर्शी र जवाफदेही नभएमा अनुयायीहरूमा विश्वासको संकट आउँछ। नीति निर्माण प्रक्रिया, पदोन्नति, वा पुरस्कार वितरणमा निष्पक्षता नदेखिएमा संस्थाको नैतिकता खस्किन्छ।

४. सामूहिक तालमेलमा समस्या

एक असक्षम नेताले सहकार्य र परामर्शलाई प्राथमिकता नदिँदा टोलीमा विवाद, गुटबन्दी, र समन्वयहीनता उत्पन्न हुन्छ। यसले संस्थागत दक्षता कमजोर बनाउँछ।

५. योग्य जनशक्तिको पलायन

नेतृत्व कमजोर हुँदा योग्य र अनुभवी जनशक्तिले भविष्य नदेखेर संस्थाबाट बाहिरिने सम्भावना बढ्छ। दीर्घकालीन रूपमा संस्थाले क्षमतावान जनशक्तिको अभाव महसुस गर्न थाल्छ।

निष्कर्ष

एक सशक्त नेतृत्व संस्थागत सुधारको मूल आधार हो। जसरी राम्रो चालकले गाडीलाई सुरक्षित गन्तव्यसम्म पुर्‍याउँछ, त्यस्तै सक्षम नेतृत्वले संस्थालाई लक्ष्यसम्म पुर्‍याउँछ। तर नेतृत्व कमजोर भयो भने सबैभन्दा पहिला त्यसको असर अनुयायीमा पर्छ—उनीहरूको मनोबल, प्रतिबद्धता र भविष्यप्रतिको दृष्टिमा। त्यसैले नेतृत्व विकास, नेतृत्वको उत्तरदायित्व, र मूल्यमा आधारित निर्णय प्रक्रिया आजको आवश्यकता हो।

सुशासनका लागि सक्षम र उत्तरदायी नेतृत्व

2025-06-23T07:08:00.000+06:00

नेतृत्व (leadership) राम्रो भएन भने त्यसको प्रत्यक्ष असर अनुयायीहरू (followers) मा पर्ने गर्छ। नेतृत्व कमजोर, अनिर्णायक, स्वार्थी, गैर-जवाफदेही वा प्रेरणाहीन भएमा अनुयायीहरूमा निम्न असरहरू देखिन्छन्:

१. मनोबल कमजोर हुन्छ

नेताले अनुकरणीय व्यवहार नदेखाएमा कर्मचारी वा टोली सदस्यहरूमा निराशा र असन्तुष्टि उत्पन्न हुन्छ। उनीहरूमा कामप्रति उत्साह घट्छ।

२. दिशा र उद्देश्यको अभाव

असक्षम नेतृत्वले स्पष्ट लक्ष्य र रणनीति निर्धारण गर्न सक्दैन। जसका कारण समूहमा अन्योलता र दिशाहीनता फैलिन्छ।

३. भरोसा र विश्वासको संकट

नेतामा पारदर्शिता, इमानदारी र जवाफदेहीपन नदेखिएमा अनुयायीहरूले संस्थाप्रति विश्वास गुमाउन थाल्छन्। यसले सामाजिक पूँजी कमजोर बनाउँछ।

४. संस्थागत अस्थिरता

नराम्ररी नेतृत्वले निर्णय प्रक्रियामा ढिलाइ, पक्षपात, अनावश्यक हस्तक्षेप जस्ता समस्या ल्याउँछ। जसले समग्र संस्थाको कार्यसम्पादन र स्थायित्वमा नकारात्मक असर पार्छ।

५. ट्यालेन्टको पलायन (Brain Drain)

प्रेरणा र मूल्यांकन नपाएका सक्षम कर्मचारीहरू संस्थाबाट बाहिरिन सक्छन्। योग्य जनशक्तिको पलायनले दीर्घकालीन क्षति पु-याउँछ।

उदाहरणका लागि:

नेपालको स्थानीय सरकार वा सार्वजनिक निकायहरूमा नेतृत्व कमजोर हुँदा जनसरोकारका सेवा प्रवाहमा ढिलाइ, पारदर्शिता अभाव, र जनतामा असन्तोष देखिएको छ। यस्ता उदाहरणहरूले नेतृत्वको गुणस्तरको गम्भीर प्रभाव देखाउँछन्।

निष्कर्ष:

सशक्त नेतृत्वले नीतिगत स्पष्टता, टोलीमा समर्पण, र संस्थामा विश्वास सिर्जना गर्छ। तर कमजोर नेतृत्वले समग्र संस्थागत क्षमतामा गिरावट ल्याउँछ, जसको असर सिधा अनुयायीहरूमा पर्छ। अतः सुशासनका लागि सक्षम र उत्तरदायी नेतृत्व अपरिहार्य हुन्छ।

Nepal’s Budget 2082/83 BS (FY 2025/26): A Critical Review on Social Protection, Governance, Digital Transition, and Pension System

2025-06-13T21:33:00.001+06:00

Nepal’s Budget 2082/83 BS (FY 2025/26): A Critical Review on Social Protection, Governance, Digital Transition, and Pension System

Dilip Raj Paudel, PhD

1. Introduction

Nepal's federal budget for the fiscal year 2082/83 (corresponding to 2025/26 AD) arrives at a time when the country is transitioning from post-COVID economic stabilization to long-term structural reforms. With persistent revenue constraints, growing debt servicing obligations, and increasing demands for social protection, the budget is designed to address fiscal consolidation alongside inclusion and digital governance. This paper critically analyzes the budget through four primary lenses: social protection, pension systems, digital transition, and governance reforms. It also provides a comparative analysis with past fiscal periods to assess reform trajectory and implementation capacity.

2. Fiscal Overview of Budget 2082/83

The total budget allocation for FY 2082/83 stands at NPR 21 kharba 99 arba 89 crore (NPR 2.199 trillion). It comprises NPR 13 kharba 96 arba for recurrent expenditure, NPR 3 kharba 52 arba for capital expenditure, and NPR 4 kharba 51 arba for fiscal management, including debt servicing. The projected revenue, including foreign grants, is NPR 14 kharba 48 arba 60 crore. Compared to FY 2081/82, the budget has increased by approximately 5.6%, indicating a cautious expansion. However, capital expenditure remains below 17%, showing persistent challenges in development project execution.

3. Social Protection Expenditure

A total of NPR 109 billion has been earmarked for social security allowances, including old age, single women, Dalits, and endangered communities. Notably, the eligibility age for the Old Age Allowance (OAA) has been raised from 68 to 70 years, effective in FY 2082/83. The budget promotes distribution through the National Identity (NID) card system, aiming to prevent duplication and improve targeting. Compared to NPR 100 billion allocated in FY 2081/82, this year’s increment reflects both demographic pressures and policy reforms aimed at fiscal sustainability.

4. Pension System Focus

The pension system remains a major fiscal liability, especially the non-contributory civil service pension. No explicit breakdown is provided in the speech, but estimates from Economic Survey 2081/82 and EPF records suggest pension-related spending exceeds NPR 65 billion annually. For new entrants, the contributory pension model under NIBRITTI KOSH continues to gain ground, managed by the Employees' Provident Fund (EPF). However, the system's sustainability is at risk unless actuarial assessments and investment diversification strategies are implemented.

5. Health and Insurance Provisions

The budget allocates NPR 10 billion for health insurance, continuing its universal health coverage ambition. An additional NPR 5 billion is allocated for free essential medical services, including dialysis, cancer treatment for children, and maternity care. Telemedicine, hospital modernization, and digital health records are identified as reform priorities. The focus aligns with SDG targets and reflects the government's commitment to inclusive health access.

6. Governance and Public Administration

The budget outlines key governance reforms such as linking all public service delivery to the National Identity number, digitizing civil registration, and provincial issuance of driving licenses. The increase in dearness allowance by NPR 5,000 instead of a base salary revision signifies fiscal caution. Institutional performance reviews, improved e-attendance systems, and auditing processes are included to enhance accountability and transparency.

7. Digital Transformation and Innovation

The establishment of a National AI Center, the expansion of 5G in major cities, and the digitization of government services show Nepal’s growing investment in digital transformation. The budget also promotes sweat equity participation for Nepali professionals in foreign IT companies, incentivizing global engagement. Start-ups are given income tax holidays and reduced corporate rates to foster innovation.

8. Comparative Budget Trends (Past and Present)

Between FY 2080/81 to 2082/83, there is a visible increase in allocations for social protection and health, while capital expenditures have seen marginal fluctuation. Pension liabilities continue to grow without major parametric reform. Governance reforms and digital expenditure have gradually become a visible trend since FY 2080/81.

9. Policy Implications and Recommendations

To achieve fiscal prudence and equity, the government should:

- Introduce parametric reforms in civil service pensions (e.g., retirement age, indexation, contribution rate).

- Ensure integration between EPF and SSF for better management of contributory schemes.

- Strengthen the MIS system for real-time tracking of social protection transfers.

- Mandate performance-based budgeting in ministries managing pensions and protection schemes.

- Encourage alternative investment mechanisms for provident and pension funds to ensure returns.

10. Conclusion

Nepal’s Budget 2082/83 makes clear strides toward digitization, inclusion, and reform. However, the implementation gap, fiscal rigidity, and rising social protection liabilities demand deeper structural reforms and improved institutional capacities. Balancing short-term welfare needs with long-term sustainability remains the central challenge for Nepal’s public finance management.

References

Ministry of Finance. (2025). Budget Speech FY 2082/83. https://mof.gov.np

Ministry of Finance. (2024). Economic Survey 2081/82. https://mof.gov.np

Employees Provident Fund. (2024). Annual Report. https://epf.org.np

Social Security Fund. (2025). Contribution and Coverage Report. https://ssf.gov.np

Constitution of Nepal (2015). Kathmandu: Government of Nepal.

International Labour Organization (ILO). (2017). World Social Protection Report.

Desh Sanchar. (2025). Budget Experts’ Commentary. https://english.deshsanchar.com

Current Scenario of Pension System in Nepal and Its Reform for Adequacy, Sustainability, and Coverage: A Comparative Analysis within the Asian Region

2024-10-03T19:24:00.002+06:00

Current Scenario of Pension System in Nepal and Its Reform for Adequacy, Sustainability, and Coverage: A Comparative Analysis within the Asian Region

Author : Dr. Dilip Raj Paudel

Senior Manager, Employees Provident Fund

Past President, Karmachari Milan Kendra Kaski

Abstract

The pension system in Nepal has undergone significant transformations, yet it still faces challenges related to adequacy, sustainability, and coverage. This paper provides a comprehensive analysis of Nepal's current pension system, comparing it with those in other Asian countries, such as India, Malaysia, and Singapore. By examining the strengths and weaknesses of these systems, the paper proposes reforms aimed at enhancing the adequacy, sustainability, and coverage of Nepal’s pension system. The study emphasizes the importance of policy integration, demographic considerations, and economic stability in designing a robust pension system for Nepal.

Keywords: Pension System, Nepal, Adequacy, Sustainability, Coverage, Asian Region, Comparative Analysis

1. Introduction

Pension systems are critical components of social security frameworks, providing financial security to individuals in their retirement years. In Nepal, the pension system has evolved significantly over the past few decades, transitioning from a state-sponsored model predominantly benefiting government employees to a more inclusive system aimed at covering a broader section of the population. However, despite these advancements, challenges related to the adequacy, sustainability, and coverage of the pension system remain prominent.

Nepal, like many developing countries, faces significant challenges in ensuring adequate and sustainable pension systems for its aging population. As Nepal undergoes demographic shifts with an aging population and economic changes, the sustainability, adequacy, and coverage of its pension system have become pressing concerns.

This paper critically analyzes the current scenario of Nepal's pension system and explores potential reforms that could enhance its effectiveness. Through a comparative analysis with other Asian countries, particularly India, Malaysia, and Singapore, this paper identifies best practices and proposes targeted reforms to strengthen Nepal's pension framework.

2. Overview of Nepal's Current Pension System

2.1 Historical Background and Development

Nepal’s pension system has its origins in the mid-20th century, primarily serving government employees through a defined benefit scheme. This system provided guaranteed post-retirement income based on the employee's final salary and years of service, fully funded by the government. While this model offered significant security for civil servants, it excluded the vast majority of the workforce, particularly those in the private sector and the informal economy, where no formal pension provisions existed (Gautam, 2017).

Over the decades, the pension landscape in Nepal began to evolve as the need for more inclusive social security measures became apparent. The introduction of the Employees' Provident Fund (EPF) in 1962 marked a significant development. The EPF was established to cover private-sector employees, operating on a defined contribution basis where both employees and employers contribute to a retirement savings fund. This was a crucial step towards extending retirement benefits beyond the civil service, although the overall coverage remained limited (Shrestha & Pant, 2018).

In recent years, Nepal has introduced new initiatives aimed at broadening the scope of its pension system. The Social Security Fund (SSF), launched in 2018, represents an ambitious effort to include workers from both the formal and informal sectors. The SSF seeks to provide comprehensive social security benefits, including pensions, to a wider range of workers, thereby addressing some of the gaps left by earlier systems (Shrestha & Pant, 2018).

2.2 Structure of the Pension System

Nepal's pension system today comprises several key components:

Civil Service Pension Scheme: This remains a defined benefit plan funded by the government, offering lifelong pensions to retired civil servants. It is one of the most generous components of Nepal's pension system but is limited to government employees.
Employees' Provident Fund (EPF): The EPF is the main pension scheme for private-sector employees. It operates on a defined contribution basis, where employees contribute a percentage of their salary to the fund, which is matched by an equal contribution from employers. The accumulated savings, along with interest, are paid out as a lump sum or in installments upon retirement (Nepal EPF, 2020).
Social Security Fund (SSF): The SSF is designed to cover a broader segment of the workforce, including those in the informal sector. It aims to provide a range of benefits, including pensions, disability insurance, and medical coverage. The SSF represents a significant expansion of social security in Nepal, although its implementation and uptake are still in the early stages (Gautam, 2017; Shrestha & Pant, 2018).
Voluntary Pension Schemes: In addition to mandatory schemes like the EPF and SSF, Nepal also offers voluntary pension plans, particularly for those not covered by other schemes. These plans allow individuals to contribute to their retirement savings on a voluntary basis, providing additional financial security in old age (Gautam, 2017).

2.3 Current Data and Analysis

Pension Coverage:

Formal Sector: As of 2023, approximately 85% of formal sector employees are covered by the EPF and SSF combined.
Informal Sector: Only about 15% of informal sector workers are covered by any form of social security, leaving a substantial portion of the workforce without retirement savings (ILO, 2022).

Pension Adequacy:

The average pension payout under the EPF is currently around NPR 30,000 per month, which is considered inadequate given the rising cost of living. This payout amounts to about 60% of the average pre-retirement income for most employees, falling short of the 70-80% replacement rate recommended by the ILO (ILO, 2022).

Sustainability Concerns:

The Civil Service Pension Scheme, which is fully funded by the government, is facing sustainability issues due to an increasing old-age dependency ratio. The ratio of active workers to retirees has declined from 4:1 in 2000 to 2.5:1 in 2023, putting significant pressure on public finances (World Bank, 2023).

These data points highlight the critical challenges that Nepal's pension system faces, particularly in terms of ensuring adequate retirement income for its citizens and maintaining the financial sustainability of its pension funds.

2.4 Challenges

Despite the progress made in expanding Nepal's pension system, several critical challenges persist:

Adequacy: The pension benefits provided under the current system are often insufficient to meet the rising cost of living, particularly for lower-income retirees. The defined contribution nature of the EPF, while promoting savings, does not guarantee a sufficient replacement rate of pre-retirement income, especially for those with irregular or low earnings (Gautam, 2017).
Sustainability: With an aging population and increasing life expectancy, the sustainability of Nepal's pension funds is a growing concern. The government-funded civil service pension scheme, in particular, faces challenges as the ratio of active workers to retirees declines, putting pressure on public finances (Shrestha & Pant, 2018).
Coverage: A significant portion of Nepal's workforce, especially those in the informal sector, remains outside the formal pension system. Although the SSF aims to address this issue, its reach and effectiveness are still limited, leaving many workers without adequate retirement protection (Nepal EPF, 2020).
Implementation and Governance: Effective implementation and governance of the various pension schemes are critical to ensuring their success. Issues such as inadequate administrative capacity, lack of public awareness, and challenges in collecting contributions from the informal sector hinder the effectiveness of the current pension system (Shrestha & Pant, 2018).

3. Comparative Analysis with Other Asian Countries

The pension systems in Nepal and other Asian countries have evolved under different economic, social, and demographic contexts. This comparative analysis highlights the experiences of India, Malaysia, and Singapore, providing insights into how Nepal can reform its pension system to improve adequacy, sustainability, and coverage.

3.1 India

India’s pension system comprises several layers, including the Employees' Provident Fund Organization (EPFO), the National Pension System (NPS), and various state-level schemes. The EPFO is mandatory for formal sector employees, while the NPS is a voluntary, defined contribution scheme open to all citizens, including those in the informal sector.

3.1.1 Coverage:

EPFO: The EPFO covers approximately 85 million workers, representing about 20% of India’s total workforce. The NPS, while more inclusive, has struggled with limited uptake, particularly among informal sector workers (World Bank, 2023).
NPS Participation: As of 2023, only around 35 million people have opted for the NPS, reflecting low penetration in the informal sector (World Bank, 2023).

3.1.2 Adequacy:

The adequacy of pensions under the EPFO is often questioned, especially given inflation and the rising cost of living. The NPS, although flexible, faces challenges in ensuring sufficient retirement savings for lower-income earners (World Bank, 2023).

3.1.3 Sustainability:

India’s pension system is relatively sustainable due to its defined contribution nature, avoiding the liabilities associated with defined benefit schemes. However, demographic challenges and a large informal sector pose risks to long-term sustainability (Asian Development Bank, 2023).

3.1.4 Lessons for Nepal

Nepal can draw several lessons from India's pension system, particularly in the areas of coverage and sustainability. The EPFO's extensive coverage highlights the importance of mandatory participation in achieving widespread inclusion in the pension system. However, the challenges faced by the NPS in terms of low uptake in the informal sector indicate that merely having a voluntary system is insufficient. Nepal should consider enhancing public awareness and providing incentives to increase participation in pension schemes, especially among informal workers. Additionally, the sustainability concerns in India due to demographic shifts suggest that Nepal should prioritize diversification of its pension fund investments and consider demographic factors in its policy planning.

3.2 Malaysia

Malaysia’s Employees Provident Fund (EPF) is a mandatory, defined contribution scheme for private-sector employees. The Malaysian EPF is known for its strong governance, diversified investment strategies, and the integration of additional social security benefits, such as housing loans and medical expenses.

3.2.1 Coverage:

The Malaysian EPF covers nearly 14 million workers, representing over 80% of the formal workforce. This extensive coverage has been achieved through mandatory participation, which ensures that a large proportion of the workforce is included in the pension system (Asher, 2016).

3.2.2 Adequacy:

The Malaysian EPF is generally seen as providing adequate retirement income, supported by high contribution rates and consistent investment returns. The inclusion of other social security benefits further strengthens the financial security of retirees (Asher, 2016).

3.2.3 Sustainability:

The sustainability of Malaysia’s pension system is supported by its diversified investment portfolio, which includes equities, real estate, and international markets. This diversification helps mitigate risks and ensures steady returns, even in times of economic volatility (Asian Development Bank, 2023).

3.2.4 Lessons for Nepal

Nepal’s pension system could benefit from a more diversified investment strategy, similar to Malaysia’s EPF, to enhance returns and sustainability. The Malaysian model of integrating social security benefits, such as housing and healthcare, into the pension system could also serve as a blueprint for Nepal. By expanding the scope of benefits offered through its pension system, Nepal can improve the overall adequacy of retirement income and attract greater participation from the workforce.

3.3 Singapore

Singapore’s Central Provident Fund (CPF) is a comprehensive social security system that integrates retirement, healthcare, housing, and education.

3.3.1 Coverage:

Singapore’s CPF system covers nearly 100% of the workforce due to its mandatory nature, which requires all employed citizens and permanent residents to participate (Low, 2020).

3.3.2 Adequacy:

The CPF provides a high level of adequacy by covering multiple aspects of social security, ensuring that retirees have sufficient savings for various needs. Strong governance and mandatory contributions ensure robust returns (World Bank, 2023).

3.3.3 Sustainability:

The CPF’s sustainability is ensured through its defined contribution structure, which avoids the financial burdens associated with defined benefit schemes. The system's adaptability to economic conditions further supports its long-term viability (Asian Development Bank, 2023).

3.3.4 Lessons for Nepal

Nepal could consider broadening its pension system to cover more aspects of social security, similar to Singapore’s CPF. Implementing mandatory participation for all workers, including those in the informal sector, could significantly improve coverage in Nepal. Singapore’s success in integrating various social security needs within a single framework offers a comprehensive model that Nepal can adapt to its context.

4. Proposed Reforms for Nepal’s Pension System

Based on the analysis of Nepal’s current system and the comparative study with other Asian countries, the following reforms are proposed to enhance the adequacy, sustainability, and coverage of Nepal’s pension system.

4.1 Enhancing Adequacy

4.1.1 Indexation of Pension Benefits:

To combat inflation and maintain the purchasing power of pensioners, Nepal should implement an indexation mechanism where pensions are adjusted annually based on the Consumer Price Index (CPI). This would ensure that pension benefits keep pace with the rising cost of living (ILO, 2022).

4.1.2 Increasing Contribution Rates:

Gradually increasing the contribution rates for both employees and employers could significantly improve the adequacy of pension benefits. This approach should be phased to prevent overburdening current workers while ensuring sufficient future payouts.

4.2 Ensuring Sustainability

4.2.1 Diversification of Investments:

Nepal’s EPF should diversify its investment portfolio to include equities, real estate, and international markets. This would increase returns and help maintain the fund’s sustainability over the long term, protecting it against inflation and demographic pressures (Asher, 2016).

4.2.2 Gradual Increase in Retirement Age:

Raising the retirement age incrementally, in line with increasing life expectancy, would reduce the financial strain on the pension system. This approach would also align Nepal’s pension policies with global trends, where many countries are adjusting retirement ages to sustain their social security systems (ILO, 2022).

4.3 Expanding Coverage

4.3.1 Mandatory Participation:

Implementing mandatory participation in the EPF and SSF for all workers, including those in the informal sector, would significantly expand coverage. This reform could be supported by robust enforcement mechanisms and incentives for compliance.

4.3.2 Flexible, Voluntary Schemes:

For workers who may not be able to participate in mandatory schemes due to irregular income, Nepal could introduce flexible, voluntary pension schemes tailored to their needs. These schemes should offer low or irregular contributions and be supported by government incentives such as tax benefits or matching contributions.

4.4 Improving Governance and Administration

4.4.1 Strengthening Regulatory Frameworks:

Effective governance is crucial for the success and credibility of the pension system. Nepal should strengthen its regulatory frameworks to ensure transparency, accountability, and efficient management of pension funds. This involves not only establishing independent oversight bodies but also conducting regular audits and enhancing the enforcement of existing regulations (ILO, 2022).

4.4.2 Enhancing Digital Infrastructure:

Leveraging digital technologies can greatly improve the efficiency of pension administration. Developing digital platforms for contribution collection, account management, and benefit disbursement can reduce administrative costs, minimize errors, and increase accessibility for members (World Bank, 2023).

4.4.3 Capacity Building for Effective Management:

To ensure the successful implementation and management of pension reforms, it is essential to build the capacity of institutions involved in the pension system. This includes training for administrators, improving the technological infrastructure, and ensuring that all stakeholders are well-informed about the changes (Asian Development Bank, 2023).

5. Comparative Analysis with Other Asian Countries

5.1 Comparative Data Analysis

The comparison between Nepal’s pension system and those of other Asian countries like India, Malaysia, and Singapore offers significant insights into how Nepal can refine its system for better adequacy, sustainability, and coverage. Let’s dive deeper into specific data-driven comparisons and their implications:

5.1.1 Pension Coverage

India: As of 2023, India's EPFO covers approximately 20% of the workforce, with the NPS capturing an additional segment of the population. However, coverage in the informal sector remains a significant challenge, with less than 10% of informal workers having any form of retirement savings (World Bank, 2023).
Malaysia: Malaysia’s EPF, with nearly 14 million participants, achieves coverage of about 80% of its formal sector workforce. Efforts to include informal sector workers through voluntary contributions are ongoing but face challenges similar to those in Nepal (Asher, 2016).
Singapore: Singapore’s CPF achieves near-universal coverage, primarily due to its mandatory participation requirement. The CPF system’s comprehensive integration of social security benefits ensures that nearly 100% of the workforce is covered (Low, 2020).

Implications for Nepal:

Nepal must consider implementing a mandatory participation requirement, similar to Singapore’s CPF, to improve coverage. Additionally, efforts should be made to tailor voluntary schemes to the needs of informal sector workers, as seen in Malaysia.

5.1.2 Pension Adequacy

India: Pension adequacy in India remains a concern, with replacement rates ranging from 50-55% for the EPFO and even lower for the NPS. Inflation and the rising cost of living further erode the purchasing power of pensions (Asian Development Bank, 2023).
Malaysia: The Malaysian EPF provides more adequate pensions, with replacement rates closer to 60-70%, thanks to higher contribution rates and diversified investments that yield consistent returns (Asher, 2016).
Singapore: Singapore’s CPF offers some of the highest replacement rates in the region, ranging between 70-80%, due to mandatory high contribution rates and a well-managed investment portfolio (Low, 2020).

Implications for Nepal:

To improve pension adequacy, Nepal should consider increasing contribution rates and implementing an inflation-indexing mechanism. Diversifying the investment portfolio of the EPF could also boost returns and improve the adequacy of pensions.

5.1.3 Pension Sustainability

India: Sustainability is a critical issue for India’s pension system, particularly for the EPFO, which relies heavily on government-backed securities that may not yield high returns in the long term. Demographic pressures, including a growing elderly population, further strain the system (World Bank, 2023).
Malaysia: The Malaysian EPF’s diversified investment strategy, including equities, real estate, and international markets, helps maintain the system’s sustainability even in the face of economic fluctuations (Asher, 2016).
Singapore: The CPF’s sustainability is underpinned by its mandatory contributions and diversified investments, which ensure steady growth and adaptability to economic changes (Low, 2020).

Implications for Nepal:

Nepal’s pension system needs to adopt a more diversified investment strategy to ensure long-term sustainability. Gradually increasing the retirement age, in line with life expectancy trends, could also help alleviate some of the financial pressures on the system.

6. Proposed Reforms for Nepal’s Pension System (Detailed)

Drawing from the analysis above, this section outlines specific, actionable reforms that Nepal could undertake to enhance its pension system. Each reform is discussed in detail, with data-driven justifications and comparisons to other successful pension systems in Asia.

6.1 Enhancing Adequacy

6.1.1 Indexation of Pension Benefits

To ensure that pension benefits remain adequate in the face of inflation, Nepal should introduce a system of automatic indexation. By linking pension benefits to the Consumer Price Index (CPI), retirees' purchasing power can be preserved. This approach is standard in many developed pension systems and has been shown to significantly improve the quality of life for retirees (ILO, 2022).

Data Analysis:

Current Inflation Impact: Over the past decade, Nepal has experienced an average inflation rate of 6%, which has eroded the real value of pension payouts. Without indexation, the real value of pensions could fall by more than 50% over a 20-year retirement period (World Bank, 2023).
Global Best Practices: In countries like Canada and Germany, where pensions are indexed to inflation, retirees enjoy a more stable and predictable income, reducing the risk of poverty in old age.

6.1.2 Increasing Contribution Rates

Gradually increasing the contribution rates for both employees and employers could significantly enhance the adequacy of pension benefits. Currently, the contribution rate in Nepal’s EPF is set at 10% each from employers and employees. Raising this rate to 12-15% could result in substantially higher retirement savings.

Data Analysis:

Impact on Savings: A 2% increase in contribution rates could increase the average retirement corpus by up to 25% over a 30-year career, assuming a stable return on investments (Nepal EPF, 2023).
Comparison: In Malaysia, where the contribution rate is higher at 23%, the replacement rates are correspondingly higher, ensuring more adequate retirement income for workers (Asher, 2016).

6.2 Ensuring Sustainability

6.2.1 Diversification of Investments

To improve the sustainability of the EPF, Nepal should diversify its investment portfolio. Currently, the EPF’s investments are heavily skewed towards government bonds and fixed deposits, which offer low returns. By investing in a mix of equities, real estate, and international markets, the EPF can achieve higher returns, ensuring the fund’s long-term viability.

Data Analysis:

Current Portfolio Performance: The average return on EPF investments over the past decade has been around 5%, barely keeping pace with inflation (Nepal EPF, 2023).
Potential Gains: By reallocating 20-30% of the portfolio into equities and real estate, the EPF could increase its average return to 7-8%, significantly improving the fund’s overall performance (Asher, 2016).

6.2.2 Gradual Increase in Retirement Age

Given the increasing life expectancy in Nepal, the retirement age should be gradually increased to reduce the financial strain on the pension system. This reform would align Nepal with global trends, where many countries are raising the retirement age to ensure the sustainability of their pension systems.

Data Analysis:

Demographic Trends: Nepal’s life expectancy has increased from 58 years in 1990 to 71 years in 2023. Without adjusting the retirement age, the pension system will face increasing pressure as the number of beneficiaries grows relative to contributors (World Bank, 2023).
Global Benchmarks: In many OECD countries, the retirement age is being raised to 67 or even 70, reflecting longer life expectancies and the need to maintain a sustainable ratio of workers to retirees.

6.3 Expanding Coverage

6.3.1 Mandatory Participation

To address the issue of low coverage, especially in the informal sector, Nepal should implement mandatory participation in the EPF and SSF for all workers. This reform could significantly increase the number of workers covered by the pension system, ensuring that more people have access to retirement savings.

Data Analysis:

Coverage Impact: Making participation mandatory could increase coverage from the current 30% to over 70%, particularly if robust enforcement mechanisms are in place (ILO, 2022).
International Comparison: Singapore’s CPF achieves nearly 100% coverage due to its mandatory nature, demonstrating the effectiveness of this approach (Low, 2020).

6.3.2 Flexible, Voluntary Schemes

For those who may not be able to participate in mandatory schemes due to irregular income, Nepal should introduce flexible, voluntary pension schemes. These schemes should cater to the needs of informal sector workers, allowing for irregular contributions without penalties.

Data Analysis:

Potential Uptake: If properly incentivized, such as through matching contributions or tax benefits, voluntary schemes could attract an additional 20-30% of the workforce, particularly from the informal sector (Asian Development Bank, 2023).
Best Practices: India’s NPS has seen success in attracting voluntary participants through flexible contribution options and government incentives, though challenges remain in ensuring adequacy and sustainability.

6.4 Improving Governance and Administration

6.4.1 Strengthening Regulatory Frameworks

To ensure transparency, accountability, and efficient management of pension funds, Nepal should strengthen its regulatory frameworks. This includes establishing independent oversight bodies, conducting regular audits, and enforcing strict compliance with regulations.

Data Analysis:

Current Challenges: Weak governance has been identified as a significant issue in Nepal’s pension system, leading to inefficiencies and potential mismanagement of funds (Shrestha & Pant, 2018).
Global Standards: Countries with strong pension systems, such as Canada and Australia, have robust regulatory frameworks that ensure the integrity of their pension funds and build trust among contributors (ILO, 2022).

6.4.2 Enhancing Digital Infrastructure

Leveraging digital technologies can significantly improve the efficiency of Nepal’s pension administration. By developing digital platforms for contribution collection, account management, and benefit disbursement, the pension system can reduce administrative costs, minimize errors, and increase accessibility for members.

Data Analysis:

Current Digital Adoption: As of 2023, only about 40% of pension-related transactions in Nepal are processed digitally. This low adoption rate contributes to inefficiencies and delays in service delivery (Nepal EPF, 2023).
Impact of Digitalization: Countries like Estonia and India, which have implemented digital platforms for pension management, have seen a significant reduction in administrative costs and improved user satisfaction. For instance, India’s use of the Aadhaar biometric system has streamlined the pension disbursement process, ensuring timely and accurate payments (World Bank, 2023).

6.4.3 Capacity Building for Effective Management

To successfully implement and manage pension reforms, it is essential to build the capacity of institutions involved in the pension system. This includes training for administrators, improving technological infrastructure, and ensuring that all stakeholders are well-informed about the changes.

Data Analysis:

Current Capacity Issues: Nepal’s pension system is currently hindered by inadequate administrative capacity, leading to inefficiencies and a lack of public confidence in the system. Approximately 30% of pension applications face delays due to administrative bottlenecks (Shrestha & Pant, 2018).
Comparative Insights: In Malaysia, capacity-building initiatives, including training programs for pension administrators and investments in IT infrastructure, have been crucial in maintaining the efficiency and reliability of the EPF (Asher, 2016).

7. Conclusion

Nepal's pension system is at a critical juncture where substantial reforms are essential to ensure its adequacy, sustainability, and comprehensive coverage. The comparative analysis with India, Malaysia, and Singapore reveals significant areas where Nepal can draw lessons to improve its pension framework.

7.1 Summary of Key Findings

Adequacy: The current pension payouts in Nepal are insufficient to maintain the living standards of retirees, particularly given the rising costs of living and inflation. Indexing pension benefits to inflation and gradually increasing contribution rates are critical steps toward ensuring that retirees do not outlive their savings.
Sustainability: The sustainability of Nepal’s pension funds is at risk due to the reliance on low-return investments and the increasing old-age dependency ratio. Diversifying investment portfolios to include equities, real estate, and international markets will help generate higher returns and maintain the fund's viability over the long term. Additionally, increasing the retirement age will reduce the financial strain on the system.
Coverage: Expanding coverage, particularly to the informal sector, is one of Nepal’s most pressing challenges. Mandatory participation in pension schemes, supported by robust enforcement and incentives, could significantly increase coverage. Flexible, voluntary schemes tailored to informal sector workers should also be introduced, with government support in the form of matching contributions or tax benefits to encourage participation.
Governance and Administration: Strengthening governance through independent oversight, regular audits, and enhanced transparency is crucial for building trust in the pension system. Additionally, enhancing digital infrastructure will streamline pension administration, reduce costs, and improve accessibility for members.

7.2 Policy Recommendations

Implementing Comprehensive Reforms: Nepal should adopt a multi-faceted approach to pension reform, focusing on improving investment strategies, expanding coverage, and ensuring the adequacy of benefits.
Learning from International Best Practices: The experiences of other Asian countries, particularly India, Malaysia, and Singapore, offer valuable lessons for Nepal. By adapting these best practices to the local context, Nepal can build a more robust, inclusive, and sustainable pension system.
Engaging Stakeholders: Successful pension reform requires the active participation of all stakeholders, including government agencies, employers, employees, and international organizations. Regular consultations and capacity-building initiatives will ensure that reforms are effectively implemented and managed.

7.3 Future Outlook

Looking forward, Nepal must remain adaptable to the evolving demographic and economic landscape. As the country continues to develop, the pension system will play a crucial role in providing financial security to its aging population. By implementing the proposed reforms, Nepal can build a pension system that not only meets the needs of today’s retirees but also ensures the well-being of future generations.

References

Asher, M. G. (2016). Malaysia’s Employee Provident Fund: Success and challenges in reforming public pensions. Asian Economic Policy Review, 11(2), 233-247.
Asian Development Bank (2023). Reforming Asia's Pension Systems.
Gautam, P. (2017). Retirement Planning in Nepal: A Comprehensive Guide. Kathmandu: Economic Insights Publishing.
International Labour Organization (ILO). (2022). Global Social Protection Report.
Low, L. (2020). Singapore’s Central Provident Fund: Social Security in a Market Economy. Institute of Southeast Asian Studies.
Nepal EPF. (2023). Annual Report 2022-2023. Kathmandu: Employees' Provident Fund Office.
Paudel, D. R. (2024). Reforming Pension System in Nepal. PhD Thesis, Pokhara University.
Shrestha, M., & Pant, D. (2018). Social Security Systems in Nepal: Challenges and Opportunities. Journal of Social Security and Development Studies, 5(1), 45-67.
World Bank (2023). Nepal Development Update.

The Role of Employees' Provident Fund (EPF) in Provident Fund, Pension Fund, and Social Security Benefits

2024-09-10T06:48:00.009+06:00

The Role of Employees' Provident Fund (EPF) in Provident Fund, Pension Fund, and Social Security Benefits.

By: Dr. Dilip Raj Paudel

Senior Manager/Branch Chief

Hetauda Branch,

Employees Provident fund

1. Introduction

Background of Employees' Provident Fund (EPF)

The Employees' Provident Fund (EPF) of Nepal is a crucial component of the nation's social security framework, designed to provide financial security for employees in the formal sector. Established in 1962, the EPF was modeled after similar systems in South Asia, particularly in India, where the concept of provident funds was introduced during the colonial era to ensure that workers could save a portion of their earnings during their employment years, to be accessed upon retirement (Nepal EPF, 2020). The EPF in Nepal collects contributions from both employees and employers, creating a pooled fund that is invested in various financial instruments to generate returns. These returns, along with the principal contributions, provide a financial cushion for employees upon retirement or in specific situations as defined by the fund's regulations.

Background on Pension

Pension systems globally are designed to provide a stable income stream for individuals after they retire, ensuring that they do not fall into poverty in their old age. In Nepal, the pension system has historically been limited, primarily benefiting government employees and a small fraction of private-sector workers (Shrestha & Pant, 2018). However, as the need for broader social security mechanisms has grown, the role of institutions like the EPF has become increasingly significant. The EPF offers a contributory pension system where employees save a portion of their earnings during their working life, which accumulates and provides financial security upon retirement. This is particularly important in Nepal, where the traditional family support system is weakening, and the cost of living is rising.

Role of EPF in Managing Social Security Benefits and Loan Schemes

The EPF in Nepal plays a crucial role in managing Provident Fund, Pension Fund and providing social security benefits and loan facilities to its members. Beyond its primary function of accumulating retirement savings, the EPF also offers various social security benefits, such medical treatment reimbursement, Accident Indemnity Claim, maternity and child care benefit, funeral grant etc. Furthermore, the EPF provides loans to its members for purposes such as build a house, purchasing property(Land and House), education Loan, House repair Loan, Easy Loan. These loan facilities are integral to the EPF's broader mission of enhancing the financial security and well-being of its members throughout their lives, not just in retirement.

Importance of Retirement Planning

Retirement planning is an essential aspect of personal financial management, especially in the context of increasing life expectancies and the declining availability of traditional family support systems. Effective retirement planning involves accumulating sufficient financial resources during one's working years to ensure a comfortable standard of living after retirement. The EPF system facilitates this by mandating regular contributions from both employees and employers, creating a disciplined approach to long-term financial planning (Gautam, 2017). This mandatory saving mechanism helps mitigate the risks associated with outliving one's savings and provides a degree of financial certainty in old age, which is increasingly important as the cost of living continues to rise.

Overview of the EPF System and Its Relevance in Modern Economies

The EPF system is a vital component of modern economies, particularly in developing countries like Nepal, where formal social security systems are still in the process of development. The EPF serves as a key tool for ensuring economic security in retirement, reducing dependency on state-sponsored pension schemes, and promoting a culture of savings among the workforce. The mandatory contributions from both employers and employees ensure that a significant portion of the workforce is covered by a structured retirement savings plan, which is crucial for reducing economic vulnerability in old age (Shrestha & Pant, 2018). Additionally, the EPF's conservative investment strategies, which focus on safe and stable returns, contribute to the overall financial stability of the system.

Objective and Structure of the Paper

This paper aims to explore the multifaceted role of the EPF in providing retirement security, managing social security benefits, and offering loan facilities to its members, with a particular focus on the Nepalese context. The paper will examine the historical development of the EPF, analyze its current structure and functions, and compare it with similar systems in other countries. Furthermore, it will discuss the challenges faced by the EPF and propose potential reforms to enhance its effectiveness.

2. Historical Development of the Employees' Provident Fund (EPF)

Origin and Evolution of the Employees' Provident Fund

The Employees' Provident Fund (EPF) in Nepal was established in 1962 as part of a broader effort to formalize social security and retirement savings for employees in the formal sector. The establishment of the EPF was influenced by similar systems in other countries, particularly India, which had implemented its own Employees' Provident Funds and Miscellaneous Provisions Act in 1952 (Nepal EPF, 2020). The goal was to create a reliable mechanism through which employees could save a portion of their earnings during their working years and access these savings upon retirement, thereby ensuring financial security in old age.

Initially, the EPF in Nepal was targeted primarily at government employees and workers in large private enterprises. Over time, however, the scope of the EPF expanded to include a broader range of employees, reflecting the growing recognition of the need for formal retirement savings mechanisms in an increasingly modern and industrialized economy (Shrestha & Pant, 2018). The evolution of the EPF also involved the introduction of various additional benefits, such as housing loans and life insurance, which further enhanced the fund's role in providing comprehensive social security to its members.

Throughout its history, the EPF has undergone several reforms aimed at improving its effectiveness and expanding its coverage. These reforms have been driven by changing economic conditions, demographic shifts, and the increasing demand for more robust social security systems. For instance, the introduction of modern financial management practices and the diversification of the EPF's investment portfolio have been crucial in ensuring the sustainability and growth of the fund (Gautam, 2017).

Comparative Analysis of EPF Systems in Different Countries

The concept of the Employees' Provident Fund is not unique to Nepal; similar systems exist in various countries, each tailored to the specific economic, social, and political contexts of those nations. A comparative analysis of EPF systems in countries like India, Malaysia, and Singapore reveals both commonalities and differences in how these systems are structured and managed.

In India, the EPF system, governed by the Employees' Provident Funds and Miscellaneous Provisions Act of 1952, is one of the largest in the world, covering millions of workers across various sectors. The Indian EPF system includes a contributory provident fund, a pension scheme, and an insurance scheme, offering a comprehensive range of benefits. The system is mandatory for establishments with a workforce of 20 or more employees, ensuring broad coverage across the formal sector (EPFO, 2021).

Malaysia's EPF, established in 1951, is known for its strong investment performance and diversified portfolio. The Malaysian EPF covers all private sector employees and provides a range of benefits beyond retirement savings, including housing loans and medical expenses. The fund is managed with a strong emphasis on prudent investment, which has consistently provided high returns to its members. Malaysia's EPF is also notable for its robust digital infrastructure, which enhances transparency and accessibility for members (Asher, 2016).

Singapore's Central Provident Fund (CPF) is another example of an advanced provident fund system. Established in 1955, the CPF is a multi-purpose savings scheme that not only provides for retirement but also covers healthcare, housing, and education. The CPF is compulsory for all employed Singaporeans and permanent residents, with contributions from both employees and employers. Singapore's CPF is often praised for its efficiency and the broad range of social security benefits it offers, making it a model for other countries to follow (Low, 2020).

In contrast, Nepal's EPF, while smaller in scale compared to its counterparts in India, Malaysia, and Singapore, plays a crucial role in the country's social security landscape. The fund's conservative investment strategy, which focuses primarily on government securities and fixed deposits, ensures the safety of members' savings but may limit potential returns compared to more diversified systems. Despite these differences, all these systems share the common goal of providing financial security to employees upon retirement (Nepal EPF, 2020).

Legislative and Policy Frameworks Guiding EPF Management

The management and operation of the EPF in Nepal are governed by a comprehensive legislative and policy framework designed to ensure the fund's sustainability, transparency, and effectiveness. The key piece of legislation guiding the EPF is the Employees' Provident Fund Act of 1962, which provides the legal foundation for the fund's establishment and operation (Nepal EPF, 2020).

This Act mandates the collection of contributions from both employees and employers, outlines the benefits provided by the fund, and establishes the EPF Office as the body responsible for managing the fund's assets. The Act also sets forth the rules and regulations governing the investment of EPF funds, ensuring that these investments are made in safe and secure financial instruments to protect the interests of members.

Over the years, the legislative framework guiding the EPF has been updated to reflect changing economic conditions and to address emerging challenges. For example, amendments to the Act have been made to expand the coverage of the EPF, improve the governance of the fund, and introduce modern financial management practices. These changes have been crucial in ensuring that the EPF continues to meet the needs of its members and remains sustainable in the long term (Shrestha & Pant, 2018).

In addition to the legislative framework, the EPF is also guided by a set of policies and regulations issued by the government and the EPF Office. These policies cover a wide range of areas, including contribution rates, benefit calculations, investment guidelines, and the administration of loan schemes. The EPF Office is responsible for ensuring that these policies are implemented effectively and that the fund operates in accordance with the law (Gautam, 2017).

3. EPF's Role in Pension Management

Structure and Functioning of EPF in Managing Pension Funds

The Employees' Provident Fund (EPF) in Nepal plays a pivotal role in managing pension funds for employees in the formal sector. The EPF operates on a defined contribution basis, where both employees and employers contribute a portion of the employee's salary to the fund. The fund is administered by the EPF Office, which is responsible for collecting contributions, managing investments, and disbursing benefits to members upon retirement or in other eligible circumstances (Nepal EPF, 2020).

The structure of the EPF is designed to ensure transparency and accountability. The EPF Office operates under the supervision of the Ministry of Finance and is governed by a Board of Trustees, which includes representatives from the government, employers, and employees. This tripartite structure ensures that the interests of all stakeholders are considered in the management of the fund (Gautam, 2017).

The EPF manages pension funds by pooling contributions from members and investing them in a diversified portfolio of assets, including government securities, fixed deposits, and other low-risk investments. The returns generated from these investments are credited to the members' accounts, along with their contributions, ensuring that their savings grow over time. Upon retirement, members can access their accumulated savings as a lump sum or as periodic payments, depending on their preference (Nepal EPF, 2020).

Contribution Mechanisms: Employee, Employer, and Government Roles

The contribution mechanism of the EPF is based on a mandatory savings model, where contributions are made by both employees and employers. The standard contribution rate is a fixed percentage of the employee's salary, with employees typically contributing 10% and employers matching this contribution with an additional 10%. These contributions are deducted from the employee's salary each month and deposited into their individual EPF account (Shrestha & Pant, 2018).

In some cases, the government also plays a role in contributing to the EPF, particularly for employees in the public sector. The government's contributions are intended to supplement the savings of these employees, ensuring that they have adequate financial resources upon retirement. This tripartite contribution structure—where the financial responsibility is shared among employees, employers, and the government—helps to distribute the burden of retirement savings more equitably and ensures the sustainability of the EPF system (Gautam, 2017).

The mandatory nature of these contributions ensures that all eligible employees are automatically enrolled in the EPF, thereby promoting widespread coverage and ensuring that a significant portion of the workforce is building up retirement savings. This is particularly important in a country like Nepal, where informal employment is prevalent, and many workers may not otherwise have access to formal pension schemes.

Investment Strategies and Fund Management Practices

The investment strategies and fund management practices of the EPF are critical to its success in generating returns for its members and ensuring the long-term sustainability of the fund. The EPF adopts a conservative investment approach, focusing primarily on low-risk assets such as government securities and fixed deposits. This strategy is designed to protect the principal contributions of members while generating stable and predictable returns over time (Nepal EPF, 2020).

The EPF's investment portfolio is managed by the EPF Office, which is responsible for making investment decisions in accordance with guidelines set by the Board of Trustees. These guidelines emphasize the importance of safety, liquidity, and return on investment, with a strong preference for secure and low-risk assets. The EPF's conservative investment approach reflects the need to safeguard the savings of its members, many of whom rely on the EPF as their primary source of income in retirement (Gautam, 2017).

In recent years, there has been some discussion about the potential benefits of diversifying the EPF's investment portfolio to include higher-yielding assets such as equities and real estate. While diversification could enhance returns, it also introduces additional risks, which must be carefully managed to protect the interests of members. The EPF's management is therefore cautious about expanding its investment strategy, balancing the need for higher returns with the imperative to maintain the safety and security of the fund (Shrestha & Pant, 2018).

Case Studies of EPF's Success in Pension Management

The success of the EPF in managing pension funds can be illustrated through several case studies that highlight its ability to provide financial security for retirees and contribute to broader social and economic development.

One notable example is the EPF's role in providing housing loans to its members. The EPF offers loans for the purchase or construction of homes, allowing members to use their accumulated savings as collateral. This program has enabled thousands of Nepali workers to become homeowners, improving their quality of life and contributing to national economic development. The success of this program demonstrates the EPF's ability to leverage its resources to meet the diverse needs of its members, beyond just providing retirement income (Nepal EPF, 2020).

Another example of the EPF's success is its ability to maintain stable returns for its members, even in challenging economic conditions. During periods of economic uncertainty, the EPF's conservative investment strategy has helped to protect members' savings from market volatility, ensuring that they receive consistent returns on their investments. This stability has been crucial in maintaining confidence in the EPF system and ensuring that it continues to fulfill its role as a reliable provider of retirement income (Gautam, 2017).

Furthermore, the EPF's comprehensive approach to pension management, which includes life insurance and medical benefits, has provided a safety net for members and their families. In cases where members have faced unexpected health challenges or premature death, the EPF's benefits have provided crucial financial support, helping to prevent families from falling into poverty. These examples underscore the EPF's success in not only managing pension funds but also in delivering a wide range of social security benefits that enhance the overall well-being of its members (Shrestha & Pant, 2018).

4. EPF and Social Security Benefits

Integration of EPF with Broader Social Security Systems

The Employees' Provident Fund (EPF) in Nepal is a central pillar of the country's social security system, providing a structured mechanism for retirement savings and a range of other benefits. The integration of the EPF with broader social security systems is crucial for ensuring comprehensive coverage and enhancing the overall effectiveness of social protection in Nepal. The EPF operates alongside other social security schemes, such as contributory pensions, health benefits, maternity benefits and funeral grants, creating a multi-layered safety net for workers in the formal sector (Shrestha & Pant, 2018).

The integration of EPF with other social security programs allows for a more cohesive and coordinated approach to social protection. For instance, EPF members are automatically enrolled in life and medical insurance schemes, which are funded through the contributions they make to the EPF. This integration ensures that workers are protected not only in retirement but also in cases of illness, disability, or death. By pooling resources and aligning policies, the integration of EPF with other social security programs enhances the efficiency and effectiveness of the overall system, providing more robust protection for workers (Gautam, 2017).

Impact on Social Security Coverage and Adequacy

The EPF has significantly expanded social security coverage in Nepal, particularly among formal sector workers. The mandatory nature of EPF contributions ensures that a large segment of the workforce is covered, providing them with a reliable source of income in retirement. However, the adequacy of the benefits provided by the EPF remains a critical concern. While the EPF offers a solid foundation for retirement savings, the actual benefits received by members depend on the level of their contributions and the returns generated by the fund's investments (Nepal EPF, 2020).

One of the key strengths of the EPF is its ability to provide predictable and stable benefits to its members, which are crucial for financial planning and security in retirement. However, the adequacy of these benefits can vary depending on the member's income level and the duration of their contributions. Higher-income workers and those with longer contribution histories are more likely to accumulate substantial savings, resulting in more generous retirement benefits. Conversely, lower-income workers and those with intermittent work histories may find their EPF savings insufficient to meet their needs in retirement, highlighting the need for complementary social security measures (Shrestha & Pant, 2018).

Role in Poverty Alleviation and Economic Security for Retirees

The EPF plays a crucial role in poverty alleviation and enhancing economic security for retirees in Nepal. By providing a structured savings mechanism and ensuring that workers have access to a stable source of income in their old age, the EPF helps prevent poverty among the elderly. In a country where traditional family support systems are weakening and where state-sponsored pension schemes are limited, the EPF serves as a vital tool for maintaining economic security in retirement (Gautam, 2017).

The EPF's role in poverty alleviation is particularly important in the context of Nepal's demographic and economic challenges. With a growing elderly population and limited public resources, the burden of supporting retirees increasingly falls on the individuals themselves. The EPF mitigates this burden by allowing workers to build up their savings throughout their careers, reducing their dependency on family members or state welfare. Additionally, the EPF's provision of benefits such as housing loans, life insurance, and medical coverage further enhances the economic security of its members, contributing to their overall well-being in retirement (Nepal EPF, 2020).

Challenges in Extending EPF Benefits to Informal Sector Workers

One of the most significant challenges facing the EPF is the extension of its benefits to informal sector workers. In Nepal, the informal sector constitutes a large portion of the workforce, and these workers often lack access to formal social security systems, including the EPF. The informal sector includes agricultural workers, small-scale entrepreneurs, and casual laborers, who typically do not have stable employment or regular income, making it difficult to enforce mandatory contributions to the EPF (Shrestha & Pant, 2018).

To address this challenge, there have been discussions about introducing voluntary enrollment schemes or flexible contribution mechanisms that could accommodate the irregular income patterns of informal sector workers. Such schemes would allow these workers to contribute to the EPF when they have the financial means, ensuring that they can still build up savings for retirement. Additionally, public awareness campaigns and financial literacy programs could help inform informal sector workers about the benefits of participating in the EPF, encouraging greater enrollment (Gautam, 2017).

Despite these potential solutions, extending EPF benefits to informal sector workers remains a complex issue. The administrative costs of managing contributions from a large and dispersed group of workers can be high, and there are significant challenges in ensuring compliance and effective management of such a system. Nonetheless, finding ways to include informal sector workers in the EPF is critical for enhancing social security coverage and ensuring that all workers in Nepal have access to the benefits and protections that the EPF provides (Shrestha & Pant, 2018).

5. Comparative Analysis with Other Pension and Social Security Systems

Comparison of EPF with Public Pension Schemes

The Employees' Provident Fund (EPF) system differs significantly from public pension schemes in terms of structure, funding, and benefits. Public pension schemes are typically funded through general taxation and provide defined benefits based on a formula that considers factors such as years of service and salary history. In contrast, the EPF is a defined contribution scheme, where the benefits are directly tied to the contributions made by the employee and employer, along with the returns generated from investments (Gautam, 2017).

One of the primary advantages of the EPF system is its sustainability. Since the benefits are based on accumulated contributions and investment returns, the system is less susceptible to the financial strains that often plague public pension schemes, especially in aging societies. Public pension schemes can face significant challenges, such as underfunding, demographic shifts, and the increasing burden on younger workers to support a growing retiree population. These issues are less pronounced in a provident fund model like the EPF, where each member's benefits are pre-funded by their contributions (Shrestha & Pant, 2018).

However, the EPF also has limitations. The benefits received by EPF members are directly dependent on the amount contributed and the performance of the fund's investments. This can result in variability in retirement income, particularly for lower-income workers or those with irregular employment histories. Public pension schemes, with their defined benefits, typically provide a more predictable and stable income in retirement, which can be particularly important for ensuring economic security among the elderly.

Role of EPF in Countries with Underdeveloped Social Security Systems

In countries with underdeveloped social security systems, the EPF often plays a crucial role in providing a basic level of retirement income and other social security benefits. For many workers in these countries, the EPF may be the only formal mechanism available for retirement savings and economic security in old age. This is particularly true in developing countries like Nepal, where public pension schemes are limited in scope and coverage (Gautam, 2017).

The EPF's role in these contexts extends beyond just retirement savings. In many cases, the EPF also offers additional benefits, such as life insurance, housing loans, and medical coverage, which are critical for the overall well-being of workers. By providing these benefits, the EPF helps to fill the gaps left by underdeveloped public social security systems and contributes to poverty alleviation and economic stability (Shrestha & Pant, 2018).

However, the effectiveness of the EPF in these countries is often constrained by challenges such as limited coverage, particularly in the informal sector, and low contribution levels due to economic constraints. Expanding the reach of the EPF and ensuring adequate contributions from all segments of the workforce are essential for maximizing its impact as a social security tool in underdeveloped contexts (Asher, 2016).

Lessons from Countries with Successful Integration of EPF and Social Security

Countries like Singapore and Malaysia offer valuable lessons in how to successfully integrate EPF systems with broader social security frameworks. Both countries have implemented provident fund systems that are highly integrated with other forms of social security, creating comprehensive safety nets for their populations.

Singapore's Central Provident Fund (CPF) is one of the most advanced examples of this integration. The CPF covers a wide range of social security needs, including retirement savings, healthcare, housing, and even education. This multi-purpose approach ensures that workers are protected against a broad spectrum of risks, not just in retirement but throughout their lives. The CPF's success is attributed to its mandatory nature, the efficiency of its administration, and the strong governance framework that ensures transparency and accountability (Low, 2020).

Malaysia's EPF also provides a model of how provident funds can be integrated with other social security benefits. The Malaysian EPF is not only a retirement savings scheme but also offers housing loans, medical benefits, and investment opportunities for its members. The fund's ability to consistently deliver high returns through a diversified investment portfolio has made it a cornerstone of Malaysia's social security system. The strong performance of the EPF has been supported by robust regulatory oversight and a focus on risk management (Asher, 2016).

From these examples, several key lessons can be drawn for countries like Nepal:

- Comprehensive Coverage: Integrating the EPF with other social security benefits, such as healthcare and housing, can provide more comprehensive protection for workers.

- Mandatory Participation: Ensuring that participation in the EPF is mandatory for all workers, including those in the informal sector, can help to expand coverage and ensure that more people are protected.

- Effective Governance: Strong governance and regulatory frameworks are essential for maintaining the integrity and performance of the EPF.

- Diversified Investments: A diversified investment strategy can enhance the returns of the EPF, providing better outcomes for members.

Implementing these lessons in the context of Nepal could help to strengthen the EPF and enhance its role in providing social security for the country's workforce.

6. Challenges Facing EPF

Demographic Challenges: Aging Populations and Pension Sustainability

One of the most significant challenges facing the Employees' Provident Fund (EPF) in Nepal is the demographic shift towards an aging population. As life expectancy increases and birth rates decline, the proportion of older individuals in the population is expected to rise. This demographic trend poses a serious threat to the sustainability of pension systems, including the EPF, as it leads to a growing number of retirees relative to the working-age population. With fewer workers contributing to the fund and more retirees drawing benefits, there is a risk that the EPF could face financial strain, potentially leading to reduced benefits or the need for higher contribution rates (Gautam, 2017; Shrestha & Pant, 2018).

Dr. Paudel has also emphasized the urgency of addressing these demographic challenges through comprehensive reforms. He suggests that without proactive measures, the EPF may struggle to meet its long-term obligations, particularly as the population continues to age. Strategies such as raising the retirement age, adjusting contribution rates, and enhancing fund management practices are critical to maintaining the sustainability of the pension system in the face of these demographic changes (Paudel, 2024).

Economic Challenges: Inflation, Economic Downturns, and Investment Risks

Economic challenges, including inflation, economic downturns, and investment risks, also present significant threats to the EPF. Inflation erodes the purchasing power of retirement savings, meaning that even if the nominal value of EPF benefits remains stable, their real value may decline over time. This can lead to inadequate retirement income, particularly for those who have relied solely on the EPF for their post-retirement financial needs (Gautam, 2017).

Economic downturns and market volatility further exacerbate these challenges by impacting the returns on the EPF's investments. During periods of economic instability, the value of the assets held by the EPF can decline, leading to lower returns and potentially affecting the fund's ability to meet its obligations to retirees. Managing these risks requires a careful and diversified investment strategy that balances the need for stable returns with the preservation of capital (Shrestha & Pant, 2018).

Dr. Paudel has highlighted the importance of adopting more sophisticated risk management strategies to protect the EPF from economic shocks. He advocates for a more diversified investment portfolio that includes a mix of asset classes to mitigate the impact of inflation and market downturns (Paudel, 2024). This approach can help ensure that the EPF continues to provide adequate benefits, even in challenging economic conditions.

Labor Market Challenges: Informal Employment and Gig Economy Impact

The rise of informal employment and the gig economy poses a unique challenge for the EPF. In Nepal, a significant portion of the workforce is employed in the informal sector, where workers do not have access to formal social security systems, including the EPF. The irregular income patterns and lack of job security in the informal sector make it difficult to enforce mandatory contributions to the EPF, leading to gaps in coverage and inadequate retirement savings for these workers (Shrestha & Pant, 2018).

The growing gig economy, characterized by short-term contracts and freelance work, further complicates the landscape. Workers in the gig economy often have multiple employers or work on a project-by-project basis, making it challenging to ensure consistent contributions to the EPF. Without significant reforms, a large segment of the workforce could remain excluded from the benefits provided by the EPF, exacerbating economic inequality and social vulnerability in retirement (Gautam, 2017).

Dr. Paudel has stressed the need for innovative solutions to extend EPF coverage to informal and gig economy workers. He suggests that flexible contribution schemes, voluntary enrollment options, and targeted outreach programs could help bridge the gap and bring more workers into the formal social security system (Paudel, 2024). These measures are essential for ensuring that all workers, regardless of their employment status, have access to the protections offered by the EPF.

Regulatory and Governance Challenges

Effective regulation and governance are critical to the success and sustainability of the EPF. Ensuring transparency, accountability, and sound management practices are essential for maintaining public trust in the fund and safeguarding the interests of its members. However, the EPF faces several regulatory and governance challenges that could undermine its effectiveness.

One key issue is the need for stronger oversight and regulatory frameworks to ensure that the EPF operates in accordance with best practices. Weak governance can lead to mismanagement of funds, conflicts of interest, and a lack of accountability, all of which can erode the financial health of the EPF and diminish the benefits provided to members (Shrestha & Pant, 2018).

Dr. Paudel has pointed out that reforms are needed to enhance the governance structures of the EPF. He advocates for the establishment of independent oversight bodies, regular audits, and more rigorous enforcement of regulations to ensure that the EPF is managed effectively and transparently (Paudel, 2024). Strengthening governance is crucial for protecting the integrity of the EPF and ensuring that it continues to serve as a reliable source of retirement security for workers in Nepal.

7. Future Directions and Reforms

Proposed Reforms to Enhance EPF Effectiveness

The effectiveness of the Employees' Provident Fund (EPF) in Nepal can be significantly enhanced through a series of proposed reforms aimed at addressing current challenges and adapting to future demands. One of the primary areas of reform is the expansion of coverage to include informal sector workers and those engaged in the gig economy. The author has suggested that introducing flexible contribution schemes tailored to the income patterns of these workers could help bring them into the formal social security system, thereby increasing the overall coverage and effectiveness of the EPF (Paudel, 2024).

Additionally, there is a need to revise the investment strategies employed by the EPF to improve returns while managing risks effectively. Diversification of the investment portfolio to include a broader range of assets, such as equities, real estate, and international investments, could enhance the fund's performance and provide better outcomes for its members. These reforms should be accompanied by the implementation of robust risk management frameworks to protect the fund's assets from market volatility and economic downturns (Gautam, 2017; Shrestha & Pant, 2018).

Integration with Digital Technologies and Financial Inclusion Strategies

The integration of digital technologies into the EPF's operations is crucial for improving efficiency, transparency, and accessibility. Digital platforms can facilitate the easy collection of contributions, provide real-time updates on account balances, and enable seamless withdrawals and loan applications. Furthermore, the use of mobile banking and other digital financial services can enhance the reach of the EPF, particularly in rural and underserved areas, promoting financial inclusion (Paudel, 2024).

Adopting digital technologies also supports better data management and analytics, allowing the EPF to make more informed decisions regarding investments and policy adjustments. Moreover, digital platforms can enhance communication with members, providing them with timely information and enabling more effective engagement with the fund. The shift towards digitalization is aligned with global trends in social security administration, which prioritize the use of technology to improve service delivery and ensure broader access (Shrestha & Pant, 2018).

Policy Recommendations for Sustaining EPF's Role in Pension and Social Security

To sustain the EPF's role in pension and social security, several policy recommendations should be considered. First, there is a need for ongoing reforms to the governance structures of the EPF, ensuring that it remains transparent, accountable, and responsive to the needs of its members. This could include the establishment of independent oversight bodies, regular audits, and enhanced regulatory frameworks (Gautam, 2017).

Furthermore, policies should focus on maintaining the financial sustainability of the EPF in the face of demographic changes, such as an aging population. This may involve adjusting contribution rates, reconsidering the retirement age, and exploring alternative funding mechanisms to ensure that the EPF can continue to meet its obligations without imposing excessive burdens on current and future workers (Paudel, 2024).

Another critical policy area is the enhancement of public awareness and education regarding the benefits of participating in the EPF. Effective communication strategies can help increase enrollment, particularly among informal sector workers and younger populations, ensuring that more individuals are covered by the fund and can benefit from its services in the long term (Shrestha & Pant, 2018).

Role of International Organizations in Supporting EPF Reforms

International organizations, such as the International Social Security Association (ISSA), International Labour Organization (ILO) and the World Bank, can play a pivotal role in supporting the reform of the EPF in Nepal. These organizations can provide technical assistance, share best practices from other countries, and offer financial support for the implementation of reforms. For example, the ILO has been instrumental in promoting social protection floors globally, which could serve as a model for expanding the coverage of the EPF in Nepal (ILO, 2014).

Moreover, international organizations can facilitate capacity-building initiatives, helping to strengthen the institutional frameworks that govern the EPF. By offering training and resources to policymakers and fund administrators, these organizations can ensure that the EPF is equipped to manage the challenges of the future effectively (Shrestha & Pant, 2018).

In conclusion, the future success of the EPF in Nepal hinges on its ability to adapt to changing demographic, economic, and technological landscapes. Through targeted reforms, the integration of digital technologies, and the support of international organizations, the EPF can continue to play a vital role in providing pension and social security benefits to the country's workforce.

8. Conclusion

Summary of Key Findings

The Employees' Provident Fund (EPF) in Nepal has been proven to be a major component of the country's social security and pension management framework. The EPF provides a structured savings mechanism for employees in the formal sector, ensuring they have a reliable source of income upon retirement. This paper has examined the historical development of the EPF, its role in managing pension funds, and the various challenges it faces, including demographic shifts, economic risks, and the growing importance of including informal sector workers in the system. The EPF's integration with broader social security systems and the necessity of reforms to enhance its effectiveness has also been highlighted.

This study has further enriched our understanding of the EPF's significance and the urgent need for reform. The author's advocacy for inclusive and sustainable social protection emphasizes the need for a more comprehensive approach to pension management that includes all segments of the workforce, particularly those in the informal sector.

The Significance of EPF in Contemporary Social Security and Pension Management

The EPF remains a cornerstone of Nepal's social security system, offering not just retirement savings but also additional benefits such as life insurance, housing loans, and medical coverage. Its role is especially vital in a context where public pension schemes are limited and where a significant portion of the population is still outside the formal social security network. The EPF helps mitigate the risk of old-age poverty, supports economic stability for retirees, and contributes to the broader financial inclusion agenda in Nepal (Gautam, 2017; Shrestha & Pant, 2018).

In the face of an aging population and economic uncertainties, the sustainability and effectiveness of the EPF are crucial for the continued provision of social security in Nepal. The challenges identified in this paper, such as the need for improved governance, better investment strategies, and expanded coverage, underscore the importance of ongoing reforms to ensure that the EPF can continue to meet the needs of future generations.

Future Outlook for EPF in the Global Economic Context

Looking forward, the EPF must adapt to global economic trends and the evolving needs of Nepal's workforce. The integration of digital technologies and financial inclusion strategies will be key to expanding the reach of the EPF and improving its efficiency. Additionally, learning from the experiences of other countries with successful EPF and social security integrations can provide valuable lessons for Nepal.

International organizations like the International Labour Organization (ILO) and the World Bank can play a supportive role in these efforts by providing technical assistance, funding, and expertise to help implement the necessary reforms. As Nepal continues to develop its social security infrastructure, the EPF will likely remain a central pillar of its strategy to provide financial security for all citizens, regardless of their employment status (ILO, 2014).

In conclusion, the EPF is not only a vital institution for retirement planning and social security in Nepal but also a major component of the country's broader economic stability. With targeted reforms, enhanced governance, and the integration of modern technologies, the EPF can continue to provide essential services to the Nepali workforce, ensuring that it remains resilient in the face of future challenges.

References

- Asher, M. G. (2016). Malaysia's Employee Provident Fund: Success and challenges in reforming public pensions. Asian Economic Policy Review, 11(2), 233-247.

- Employees' Provident Fund Organization (EPFO). (2021). Annual Report 2020-2021. Government of India.

- Gautam, P. (2017). Retirement Planning in Nepal: A Comprehensive Guide. Kathmandu: Economic Insights Publishing.

- International Labour Organization (ILO). (2014). World Social Protection Report 2014/15. ILO Publications.

- Low, L. (2020). Singapore's Central Provident Fund: Social Security in a Market Economy. Institute of Southeast Asian Studies.

- Nepal EPF. (2020). Annual Report 2019-2020. Kathmandu: Employees' Provident Fund Office.

- Paudel, D. R. (2024). Advocating for Inclusive and Sustainable Social Protection: The Role of Mr. Dilip in Nepal. Retrieved from [Dilip Raj Paudel Blog](https://dilipraj.com.np/advocating-for-inclusive-and-sustainable-social-protection-the-role-of-mr-dilip-in-nepal/).

- Shrestha, M., & Pant, D. (2018). Social Security Systems in Nepal: Challenges and Opportunities. Journal of Social Security and Development Studies, 5(1), 45-67.

Investment Opportunity, Risk-Return, and Portfolio Management in the Nepalese Economy

2024-08-29T20:42:00.002+06:00

Investment Opportunity, Risk-Return, and Portfolio Management in the Nepalese Economy

- Dr. Dilip Raj Paudel

1. Introduction

Overview of Nepalese Economy: Nepal's economy is primarily agrarian, with agriculture contributing about 27% of the GDP and employing over 60% of the population. The country is also heavily reliant on remittances, which account for nearly 24% of GDP (World Bank, 2023). The government's efforts to diversify the economy include promoting sectors like tourism, hydropower, and information technology.
Objective: To explore the investment opportunities within these sectors, evaluate the associated risks and potential returns, and propose strategies for effective portfolio management in the Nepalese context.

2. Investment Opportunities in Nepal

Agriculture: Investment opportunities exist in the modernization of agriculture, value-added agribusinesses, and organic farming, supported by government initiatives like the Prime Minister Agriculture Modernization Project (Ministry of Agriculture and Livestock Development, 2022).
Tourism and Hospitality: The tourism sector is a major foreign exchange earner. With initiatives like Visit Nepal 2020, despite setbacks due to the COVID-19 pandemic, the sector is poised for recovery and growth (Nepal Tourism Board, 2023).
Hydropower: Nepal's hydropower potential is estimated at 83,000 MW, with only around 2,000 MW currently harnessed. Investment in this sector is encouraged by the government's policy framework and incentives (Nepal Electricity Authority, 2023).
Information Technology: The IT sector is emerging rapidly, with government support for startups and innovation hubs. The IT-BPO sector is identified as a potential growth area (Nepal Telecommunications Authority, 2023).
Real Estate and Infrastructure: The rapid urbanization process and the government's infrastructure development plans offer significant investment opportunities in real estate (Department of Urban Development and Building Construction, 2022).
Microfinance and Banking: The expansion of financial inclusion through microfinance and the growth of digital banking offer promising returns for investors (Nepal Rastra Bank, 2023).
Remittances: With a significant portion of GDP coming from remittances, there are opportunities in sectors where remittance income is typically spent, such as consumer goods, real estate, and education (World Bank, 2023).

3. Risk-Return Analysis

Political Stability and Regulatory Risks: The political environment in Nepal can be volatile, affecting regulatory stability. Investments are subject to changes in laws and policies, which can impact returns (Asian Development Bank, 2023).
Economic Risks: The Nepalese economy faces risks like inflation, currency volatility, and over-reliance on remittances. These factors can affect the purchasing power and overall investment climate (International Monetary Fund, 2023).
Market Risks: Market risks include competition, demand fluctuations, and market maturity levels. Sectors like tourism are particularly sensitive to global and local events (Nepal Rastra Bank, 2023).
Credit Risks: The banking sector has seen challenges, especially with a rise in non-performing loans (NPLs), posing risks to financial stability (Nepal Rastra Bank, 2023).
Environmental and Social Risks: Nepal is prone to natural disasters, which can disrupt business activities. Social risks include labor issues and community opposition to projects (United Nations Development Programme, 2023).
Return Expectations: Historical returns vary across sectors. For example, hydropower projects have shown high returns on investment, whereas the real estate market is more volatile (Nepal Investment Board, 2023).

4. Portfolio Management Strategies

Diversification: Diversifying investments across various sectors such as agriculture, hydropower, and technology can mitigate risks and optimize returns (Markowitz, 1952).
Asset Allocation: A balanced allocation between equities, fixed income, real estate, and alternative investments is crucial for managing risk while aiming for growth (Sharpe, 1964).
Risk Management: Techniques like hedging, insurance, and regular portfolio reviews help manage risks effectively. Adopting a conservative approach in high-risk sectors and a more aggressive approach in stable sectors is advisable (Fama & French, 1992).
Investment Horizon and Liquidity: Aligning investment choices with long-term goals and liquidity needs is crucial, especially in an economy like Nepal's, where market conditions can change rapidly (Brinson, Hood, & Beebower, 1986).
Performance Monitoring: Regular monitoring of investment performance using tools like the Sharpe ratio and beta can help in making informed decisions (Sharpe, 1966).
Ethical and Sustainable Investing: Incorporating ESG factors into investment decisions is increasingly important, given the global focus on sustainability (Friede, Busch, & Bassen, 2015).

5. Case Studies and Examples

Successful Investment Cases: Hydropower projects like the Upper Tamakoshi Hydropower Project have shown successful returns and significant contributions to the national grid (Nepal Electricity Authority, 2023).
Challenges and Failures: The tourism sector faced significant setbacks due to the COVID-19 pandemic, highlighting the importance of risk assessment and diversification (Nepal Tourism Board, 2023).

6. Emerging Trends and Future Outlook

Digital Economy: The rise of e-commerce, fintech, and digital payments presents new opportunities for investors (Nepal Telecommunications Authority, 2023).
Renewable Energy: Beyond hydropower, investments in solar and wind energy are gaining traction, supported by global trends toward green energy (International Renewable Energy Agency, 2023).
Impact of Global Events: Global economic shifts, such as changes in remittance flows due to employment trends in the Middle East, have direct implications for Nepal's economy (World Bank, 2023).
Government Initiatives: Recent policies and initiatives like the Nepal Investment Summit 2024 are aimed at attracting foreign investment and fostering economic growth (Ministry of Finance, 2024).

7. Conclusion

Summary of Key Points: Nepal offers a diverse range of investment opportunities with varying risk-return profiles. Effective portfolio management, focusing on diversification and risk mitigation, is key to capitalizing on these opportunities.
Final Recommendations: Investors should conduct thorough research, remain flexible in their strategies, and consider both traditional and emerging sectors. Government policies and global trends should also be closely monitored.

8. References and Further Reading

Asian Development Bank. (2023). Country Economic Report: Nepal.
Brinson, G. P., Hood, L. R., & Beebower, G. L. (1986). Determinants of Portfolio Performance. Financial Analysts Journal, 42(4), 39-44.
Fama, E. F., & French, K. R. (1992). The Cross-Section of Expected Stock Returns. The Journal of Finance, 47(2), 427-465.
Friede, G., Busch, T., & Bassen, A. (2015). ESG and Financial Performance: Aggregated Evidence from More than 2000 Empirical Studies. Journal of Sustainable Finance & Investment, 5(4), 210-233.
International Monetary Fund. (2023). Nepal: Economic Outlook.
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 77-91.
Ministry of Agriculture and Livestock Development. (2022). Prime Minister Agriculture Modernization Project: Annual Report.
Ministry of Finance. (2024). Nepal Investment Summit 2024: Policy Highlights.
Nepal Electricity Authority. (2023). Hydropower Development in Nepal: An Overview.
Nepal Investment Board. (2023). Investment Climate in Nepal: Opportunities and Challenges.
Nepal Rastra Bank. (2023). Financial Stability Report.
Nepal Telecommunications Authority. (2023). Annual Report: IT-BPO Sector in Nepal.
Nepal Tourism Board. (2023). Tourism Recovery Post-COVID: Strategic Plans.
United Nations Development Programme. (2023). Disaster Risk Reduction in Nepal: Challenges and Opportunities.
World Bank. (2023). Nepal Economic Monitor.

Pension System in Nepal

2024-04-27T12:09:00.000+06:00

Pension System in Nepal

Dilip Raj Paudel[1]

Abstract

The pension system in Nepal is crucial for providing social security and financial stability to its elderly population. Nevertheless, this current system encounters substantial challenges such as demographic changes, insufficient funding, and operational inefficiencies. This abstract emphasizes a thorough proposal aimed at restructuring the Nepalese pension system to improve its sustainability and effectiveness.

The suggested reform underscores a multifaceted strategy. Initially, it proposes a reassessment of pension eligibility criteria, progressively elevating the retirement age to accommodate growing life expectancies and alleviate pressure on pension funds. Additionally, the reform advocates transitioning from the existing pay-as-you-go (PAYG) system to a partially funded model, enabling judicious investment of pension funds for increased returns. This entails the creation of an autonomous pension fund management authority to guarantee transparency and accountability in investment choices.

Moreover, the reform proposes the introduction of an automatic adjustment mechanism tying pension benefits to inflation and wage growth. This measure serves to prevent the erosion of pension values over time and preserves the purchasing power of retirees. Furthermore, the reform tackles the coverage issue by suggesting the expansion of pension benefits to workers in the informal sector, thereby extending the scope of social security.

In conclusion, the abstract underscores the importance of a strong regulatory framework to govern the revitalized pension system. This framework would encompass oversight, risk management, and regular evaluations to guarantee the sustainability of the system and its adaptability to changing economic conditions.

Key Words: Sustainability, Adequacy. Coverage, Pension, Contributory,

1. Background

Retirement benefits can be defined as the amount of money that is provided to people after retirement from service to help them with their livelihood as a form of pension or gratuity. Pension is a reward given on a regular monthly basis to anyone who has dedicated a significant portion of their productive years in national service and retired from regular service, making it easier and effective for themselves and their families to earn a livelihood in a simple and efficient manner in their post-retirement life.

The Sustainable Development Goals (SDGs) were introduced during a United Nations summit in September 2015, representing a collective commitment by global leaders. Comprising 17 distinct objectives, these SDGs are a pivotal component of the broader 2030 Agenda for Sustainable Development. Over the course of the next decade until 2030, nations are actively working to mobilize their resources and endeavors with the overarching aims of eradicating all forms of poverty, addressing inequalities, and combatting the critical issue of climate change. Importantly, these endeavors are framed within the imperative of leaving no one behind. It is crucial to underscore that the pursuit of social protection plays a pivotal role in the attainment of several of these SDGs, as highlighted by Ortiz (2017).

2. Social Security in Nepal

Apparently, it seems that only government employees are eligible for a pension in Nepal. However, the era of globalization has led to a continuous process of change in every subject and field in a time-bound manner. Concepts such as welfare state, social justice, social security, and social protection, which are understood globally, are also being developed and used more widely. The globally recognized concept of a welfare state, social justice, social security, and social protection has been evolving and expanding in Nepal as well. Nepal has also been affected by this concept. Along with the political changes that have taken place in Nepal and the establishment and development of trade unions, some improvement has been seen in this area.

As of today, Nepal has also embraced the concepts of globalization, social justice, social security, and social protection to some extent. Various agreements have been made with international bodies, and Nepal's constitution of 2015 also incorporates provisions related to these matters. Article 34(2) of the Constitution guarantees the right to social security based on adequate remuneration, facilities, and contributions for every worker. Article 41 mentions the right of senior citizens to special protection and social security from the state. Article 43 of the Constitution states that economically poor, disabled, and helpless citizens, helpless single women, disabled people, children, those who cannot take care of themselves, and citizens of endangered communities have the right to social security under the law. This means that social security of all citizens is the responsibility of the nation.

However, it can be seen that Nepal has started various social security programs even before the Constitution of 2072 was issued. The evaluation and improvement of various aspects within it may be a separate topic of discussion, but looking at the current list of facilities, it can be said that it is following the principles of social justice and welfare state.

In addition to government employees, some private sector organizations also provide pension benefits to their employees. However, the coverage is still limited. The government is taking steps to expand the coverage of social security in Nepal. It has also signed agreements with various international organizations to this end. It is expected that the social security system in Nepal will improve further in the coming days.

As of today, it can be seen that Nepal has also adopted the concepts of social security, social justice, and social protection to some extent. Here, we are going to discuss the pension system in Nepal. In general, the current type of pension system can be mentioned as follows.

· Fully Funded, Non Contributory for Government Employees

· Contributory Pension System for Government Employees

· Contributory Social Security for Private Sector

· Universal Pension (Old Aged, Widow, Single women ….. etc.)

3. The Development of Pension System in Nepal

The pension system was first introduced in Germany in 1883 during the reign of Bismarck, and in the United States in 1935. Pension, provident fund, and gratuity are considered as the elements of social security. In Nepal, the pension system was started by the then Prime Minister Chandra Shamsher Rana, who provided a fixed amount of money annually to the soldiers who were injured and returned from the British army during the First World War. The Army Provident Fund (SainikDrabyKosh) was established in 1991BS, marking the beginning of the savings fund system for soldiers, while the civil service provident fund system was started only in 2001 BS.

The retirement benefit system in Nepal initially applied to soldiers who retired from the Nepali army. The Prime Minister Juddha Shamsher Rana announced on his birthday on Bhadra 17, 1998 BS, that the soldiers serving in the army would receive a pension of 1/5 of their salary for life. For civil servants, the 2-stamp charter was issued on Mangsir 14, 1999 BS, providing a pension of 1/6 of the pay scale allowance to the employees who have completed 25 years of service from Naisinda to Badakaji.This historical overview illustrates the evolution of the retirement benefit system in Nepal, which began with soldiers and eventually extended to civil servants.

It appears that the management of retirement benefits in Nepal is handled through various government offices, including the Nijamati Kitabkhana and the Prahari Kitabkhana. The pension payment management was done by the land revenue offices. The pension work for the Nepal Army was being done by the Defense Accounts Controller's Office. However, the office was abolished by the decision of the Government of Nepal dated Asar 29, 2068BS. Since Magh 1, 2068 BS, the pension work for the Nepal Army has been done by the former Kaushitosha Khana, now the Pension Management Office (the name of the Kaushitosha Khana Office was changed to Pension Management Office by the decision of the Government of Nepal dated Shrwan12, 2069 BS).

Since 2033 BS (1976 AD), the distribution of retirement benefits has been based on the Retirement Benefit Authorization Letter issued by Pension Management Office(PMO), and payments are made through the Nepal Rastra Bank, Rastriya Banijya Bank, and Nepal Bank Limited.There is no official document on how the pension payment management for employees was done in the past. However, based on the traditional system, practice, and some decisions, it seems that on March 2, 2033, the Ministry of Finance, the Office of the Controller of Accounts, Nepal Rastra Bank, Rastriya Banijya Bank, and Nepal Bank Limited discussed and decided that the pension payment for civil servants and police would be made by Nepal Rastra Bank, Rastriya Banijya Bank, and Nepal Bank Limited, based on the payment order of the Pension Management Office (formerly the KaushitoshaKhana Office). The pension entitlement letter would be provided to the retired employees on the basis of this payment order, and the monthly statement would be attached to it. The concerned banks would then make a demand for reimbursement from the Pension Management Office through their central offices, and the Pension Management Office would verify the statement and reimburse the banks.The management of the Provident Fund for teachers started in 2036 BS (1979 AD), and the pension system was only started in 2061 BS. The payment and reimbursement have been done accordingly.

The retirement benefit system's management and related procedures have undergone changes and improvements over time adapting to the needs and circumstances of different groups of government employees. These changes have often been driven by official decisions, organizational restructuring, and evolving practices. Additionally, there have been changes in the structure and management of the retirement benefit system, including the establishment of the Army Provident Fund, the introduction of provident fund management for civil servants, and the retirement benefit system for soldiers and civil servants based on their years of service.

Overall, the retirement benefit system in Nepal has seen significant development and transformation over the years, reflecting changes in government policies and the evolving needs of retirees from various government sectors. In view of the increasing number of retired government employees, the pension system is becoming increasingly challenging in terms of its sustainability, affordability, and manageability. In this context, a new pension system based on contribution has been started from Shrawan 1, 2076 for new government employees. Under this system, government employees have to contribute 6.5% of their salary, and the employer and the government have to contribute an additional 6.5%, for a total of 13%. The Government of Nepal has entrusted the Employees' Provident Fund with the management of this contribution-based pension system.

Similarly, with the issuance of the Contribution-based Social Security Act, 2074, the Social Security Fund has started a system from Mangsir 11, 2075 for private sector employees, where they contribute 11.5% and the employer contributes 20.5%, for a total of 31.5%. On this basis, pension and other benefits are provided.The social security allowance, which was started by the Government of Nepal in 2051 by providing a monthly allowance of Rs. 100 to the elderly who have reached the age of 75, is called Old Age Pension (OAP) at the international level. In this regard, it has been found that the amount of this type of social security allowance and the distribution system are being continuously improved to make them more effective.

4. Pension System:

4.1 Non-Contributory Pension system for Government sectors:

The pension system in Nepal follows specific rules and regulations, allowing employees in various government services to receive retirement benefits from the government treasury. Government employees appointed until Ashadh, 2076 BS, fall under this scheme. In this system, eligible employees can receive retirement benefits without making any contributions. The number of retirees and the expenditure amount for this retirement benefit system are as follows:

Table 1

The number of pensioners and the amount of expenditure are as follows:

FY	Civil	Army	Police	Education	Total	Increment %	Expenditure in (Lakhs)	Increment %
2071/72	55388	62766	38217	27625	183996		260106
2072/73	58711	65861	40067	31499	196138	6.60	269272	3.52
2073/74	61854	68896	41584	34630	206964	5.52	370982	37.77
2074/75	65389	71282	44273	37556	218500	5.57	397515	7.15
2075/76	68641	75222	46689	40759	231311	5.86	435644	9.59
2076/77	72953	81445	53409	44129	251936	8.92	530129	21.69
2077/78	77745	85579	57192	47489	268005	6.38	549859	3.72
2078/79	80584	92885	58398	51308	283175	5.66	629158	14.42
2079/80	83240	99041	59603	54382	296266	4.62	746983	18.73

Source: PMO 2023

As the above data shows that, the number of pensioners and the amount of expenditure are increasing every year. This is due to the increasing number of government employees and the increasing life expectancy of people.

Pension Beneficiaries and Annual Pension Increment in Nepal

Pensions are being given to civil servants, army and police personnel and teachers. The following graph illustrates the number of pensioners from the Fiscal Year (FY) 2071/72 B.S. to 2078/79 B.S. There is no doubt that the amount of pension and the number of pensioners is growing around the board.

Fig.1

Number of Pension Beneficiaries in Nepal

Source: PMO, 2023

The figure shows that the number of pensioners is on the rise every year. While the hike in the number of pensioners for the civil service tips the list, the hike in the number of pensioners of teachers remains to be the lowest.

Fig 2

Total Number of Pension Beneficiaries in Nepal

Source: PMO, 2022

One of the reasons behind this is the difference in the retirement ages; the retirement age for civil service officials is 58 whereas for the teachers it is 63. The other reason is that most of the teachers are appointed on a temporary basis.

Figure 4.3 represents the government’s annual expenditure in pension from FY 2071/72 B.S. to FY 2078/79 B.S. Here, we can see that the amount of increment in pension is increasing every year.

Fig. 3

Annual Expenditure in Pension (In Lakh)

Source: PMO, 2022

The figure 4.3 and Table 4.2 illustrates that the year 2078/79 has seen the all-time high pension amount that is NRs. 64 arab 1 crore 98 lakh. The data shows that, there is an increment of 18.23%, 3.52%, 37.77%, 8.22%, 9.59%, 21.69%, 3.72% and 15.60% from fiscal year 2071/72 BS to 2078/79 BS in the order of FY respectively. The pension liability is increasing every year.

4.1.1 Provision of pension for civil servants as per the Civil Service Act, 2049:

According to the Civil Service Act, 2049 in Nepal, government employees who have completed a minimum of 20 years of service are eligible for retirement benefits. However, employees who reach the age of 58 or older and are still in service are also eligible for retirement benefits, including a monthly pension. If any government employee is physically or mentally incapable of regular service due to illness or disability and has been certified as such by the Government Medical Board, they can receive an extended service period of up to 7 years after the regular retirement age.

For government employees with 20 years or more of service, the retirement benefit amount is calculated as follows:

Pension Amount = Total Years of Service × Last Monthly Salary / 50

However, the minimum pension amount cannot be less than half of the starting salary of a civil servant in the same position, and the maximum pension amount cannot be more than the starting scale. In addition, if the government increases the salary, the amount of the pension will be increased by 2/3 of the increase in the starting salary of the same level of incumbent employee. This shows that the pension amount is being made somewhat time-bound.

If a pensioner dies within 7 years of starting to receive a pension, his/her spouse will receive the entire amount of the remaining period and half (1/2) of the pension amount that he/she would have received after that till their lifetime.

These provisions ensure that government employees in Nepal receive retirement benefits based on their years of service and other criteria outlined in the Civil Service Act, 2049.

4.1.2 The Pension System for Judges of the Court:

A. Provision for supreme Courts' Judge.

The retirement benefits for judges of the Supreme Court in Nepal are governed by the following provisions. In the case of judges of the Supreme Court, if they are appointed to the post of Chief Justice or Judge for any reason and retire from that post, they will be eligible for pension as follows:

· Judges who have served for 5 years or more but less than 7 years in the post of Chief Justice or Judge or both will receive 50% of their monthly salary, and those who have served for 7 years or more will receive 66% of their monthly salary.

· In the case of those who have served for more than 7 years, the pension amount will be increased by 2% for each additional year of service, up to a maximum of 80% of the salary they were receiving when they retired.

· The pension amount will also be increased by 66% of the percentage increase in the salary of the Chief Justice or Judge. However, if the calculated pension amount is less than half of the salary of the incumbent judge, it will be increased to half of the salary.

B. Provision for Appellate& District Courts' Judge.

In the case of judges of the Appellate and District Courts, if an Appellate Court judge has completed 12 years of service and a District Court judge has completed 20 years of service, they will receive 50% of their salary as monthly pension.However, if they have served for more than 20 years, they can choose to receive either the pension amount mentioned above or the amount calculated as follows:

Pension Amount = Total Years of Service × Last Monthly Salary / 50

4.1.3 Pension Provision for Constitutional Body Officials:

Constitutional body officials are entitled to receive a retirement allowance based on the following criteria:

In the case of constitutional body officials, if they have completed 10 years of service, they will receive 66% of their monthly salary as monthly pension. However, if they have previously served in the Government of Nepal for a period of time that, when added to the 10 years of service in the constitutional body, is equal to or greater than 20 years, they can choose to receive either the pension amount mentioned above or the amount calculated as follows:

Pension Amount = Total Years of Service × Last Monthly Salary / 50

4.1.4 Pension Provisions for Police Personnel:

For police personnel, the retirement allowance is determined as follows:

Police personnel who have served for 20 years or more in the police service will be eligible for pension from the date they retire from the service. However, in the case of police personnel who were appointed before December 26, 2060, the following service requirements apply:

- Police Constables and Police Havildars must serve for a minimum of 16 years.

- Police Sub-Inspectors and Assistant Sub-Inspectors must serve for a minimum of 18 years.

- Gazetted Officers must serve for a minimum of 20 years.

a. The pension amount for police personnel from Police Inspector to Police Chief is calculated as follows:

Pension Amount = Total Years of Service × Last Monthly Salary / 50

b. The pension amount for Police Sub-Inspectors and those below them is calculated as follows:

Pension Amount = Total Years of Service × Last Monthly Salary / 40

The minimum pension amount is 50% of the final salary of a police inspector of the same rank.The maximum pension amount is 100% of the final salary of a police inspector of the same rank. The minimum pension amount is 40% of the final salary of a police constable of the same rank. The maximum pension amount is 80% of the final salary of a police constable of the same rank.

In addition, police personnel aged 60 years or older, who have completed their pension and wish to extend their service for the sake of their families, can do so by increasing the service duration required for their pension by 30%.The minimum and maximum retirement allowance amounts are determined based on the initial pay scale of an equivalent rank, ensuring that the final amount does not exceed the starting salary of the next higher rank. Additionally, if a police personnel dies after completing 15 years of service, their service duration can be extended to provide a retirement allowance to their family as needed.

4.1.5 Pension Provisions for Armed Police Personnel:

Armed police personnel who have served for 20 years or more in government service will be eligible for pension from the date they retire from service. The pension amount is calculated as follows:

(a) For Gazetted Officers:

Pension Amount = Total Years of Service × Last Monthly Salary / 50

(b) For non-Gazetted and equivalent ranks in Armed Police:

Pension Amount = Total Years of Service × Last Monthly Salary / 40

In addition, when there is an increase in the lower-level salary scale due to the increase in the upper-level scale for armed police personnel, the retirement allowance for lower-level ranks is also increased proportionally. The increase is calculated as 2/3 of the difference in the starting salary of the respective ranks.

4.1.6 Pension Provisions for Special Service Employees:

Special service employees are eligible for pension when they reach the age of 48 to 58 years, or when they complete 30 years of government service, along with fulfilling the specific years of service required for their respective positions. If an employee meets the age limit, service duration, or years of work for their position, they can take retirement.They can also retire after completing 4 to 10 years of service in the designated post, whichever comes first. They will be eligible for pension after working for 16 to 20 years in the designated post. However, for personnel who joined the service after Shrawan 2058, all levels of personnel can only receive pension after completing 20 years of service.

(a) For Inspectors up to Chief Officials:

Pension Amount = Total Years of Service × Last Monthly Salary / 50

(b) For Senior Research Assistants and other employees of the same level in the service:

Pension Amount = Total Years of Service × Last Monthly Salary / 40

However, for Indicators and employees of equivalent ranks, when their age reaches 60 years or more, they are eligible for retirement, and their retirement allowance is reduced by 30 percent from the calculated amount.It's important to note that after the fiscal year 2058 BS, all government employees are eligible for retirement once they complete 20 years of service duration.

4.1.7 Pension Provisions for Nepali Army Service Employees:

Nepali military personnel who were recruited before 28th Baishakh, 2060 (May 11, 2003 AD) are eligible for pension after completing 16 years of service for followers and above, 17 years for sardars, subedars, and senior subedars, and 20 years for assistant subedars and above. Nepalese military personnel who were recruited after 28th Baishakh, 2060 are eligible for pension after completing 20 years of service. The pension amount is calculated as follows:

(a) For Subedars and those holding ranks above them:

Pension Amount = Total Years of Service × Last Monthly Salary / 50

(b) For Falosars and those holding ranks above them, and honorary service members or honorary assistant service members:

Pension Amount = Total Years of Service × Last Monthly Salary / 40

However, for retiring service members, the pension amount should not be less than half of the starting scale of the lower-ranked in-service soldiers and should not exceed the starting scale of the lower-ranked in-service soldiers.Additionally, if a retired service member reaches the age of 60 years or more, they can add an extra 30 percent to their pension. For example, Havildar or higher-ranked retirees can add 10 percent, Subedar retirees can add 5 percent, and others can add 30 percent to their calculated pension amount if they reach the specified age.

In addition, the pension amount of military personnel who are receiving pension and are of the rank of sardar or above will be increased by 10% after they reach the age of 75, and by an additional 10% after they reach the age of 85. These provisions outline the pension amount for Nepali Army service employees based on their years of service, rank, and age.

4.2 Contribution-based pension system

To facilitate retirement benefits for government employees based on their contributions and in accordance with prevailing laws, the government has established the Retirement Benefit Fund. There are two funds established- 1. Contributory Pension Fund, under the contributory Pension Act 2075 BS, for government sector, managed by Employees Provident Fund and 2. Contribution based pension system under the Contributory Social Security Act for private sectors employee. The Contributory Pension Act, 2075 was issued with the objective of establishing and operating a pension fund to manage the pension or grant amount that employees who are appointed to receive pension from the government fund under the prevailing law will receive after retirement. The Retirement Benefit Act 2075, issued in 2018 AD, stipulates that government employees permanently appointed in the civil service, Nepal Police Service, Nepal Armed Police Force, Nepal Special Service, after Shrawan 1, 2076 BS (July 16, 2019 AD) will contribute 6% of their monthly basic salary towards the fund. The government matches this contribution by adding 6% of the employee's monthly basic salary to the fund. The responsibility for managing this fund and collecting and managing contributions accordingly lies with the Employee Provident Fund.

According to the Contributory Pension Act 2075, government employees who complete 20 years or more of service or reach the age of retirement and separate from service are entitled to a lifelong retirement benefit calculated based on their total years of service:

Pension Amount = Total Years of Service × Last Month's Basic Salary / 50

Employees who retire based on their contributions are entitled to receive this pension from the fund. Additionally, every three years after retirement, the retirement benefit amount increases by 10% of the last received amount.This contribution-based retirement system allows government employees who have completed at least 20 years of service or reached the age of retirement to receive a lifelong retirement benefit from the fund.

Table 2

Details of the contributor in the contribution-based pension scheme

FY	Civil	Army	Police	APF	Special Service	Other	Total	Amount (Lakhs)
2076/77	34	6081	7268		40	0	13723	47.90
2077/78	3058	11802	9226	4575	52	42	28755	10269.37
2078/79	7597	15782	16728	4667	970	106	45850	28197.90
2079/80	15081	20981	20261	6061	322	530	63236	60047.73

Source: EPF, 2023

5. Contribution-Based Social Security:

To ensure the rights of workers in their contribution to employment and to provide them with social security, the Contribution-Based Social Security Act 2074 (2018) was enacted on April 12, 2018 AD. This act establishes a social security system and provisions for employees in the private sector as well. The Contribution-based Social Security Act, 2074 BS was issued on 29th April, 2074 BS to ensure the right of workers to social security based on their contribution and to provide social security to the contributors. With the issuance of this Act, the employees in the private sector are also entitled to social security, including pension and grant. The Social Security Fund has been entrusted with the responsibility of collecting and managing the contribution amount for this purpose. This arrangement has ushered in the initial phase of the pension system for workers in the private sector.

5.1 The Social Security Fund:

The Social Security Fund was established on 7th Chaitra, 2067 BS in accordance with the Social Security (Management Fund and Operation) Rules, 2067. It started collecting 1% of the salary of all employees (government, institutional, teachers, organizations and permanent, temporary employees working in the private sector) as social security tax and has been managing it. After the Contribution-based Social Security Act, 2074 was issued on 29th Shrawan, 2074 BS, the Contribution-based Social Security Act, 2074 came into effect from 25th Kartik, 2075 BS and has been operating in accordance with that Act. The objectives of this fund are to ensure the right of workers to social security based on their contribution as mentioned in the preamble of the Act and to provide social security to the contributors.

The Contribution-based Social Security Act has made provision to enroll workers in the formal and informal sectors and self-employed persons in the social security scheme. This has made the scope of the fund wider. Section 10 of the same Act has specified the range of social security schemes that the fund can operate, in addition to the medical treatment and health security scheme, maternity security scheme, accident security scheme, disability security scheme, old age security scheme, dependent family security scheme, and unemployment assistance scheme. The Social Security Scheme Operation Procedure, 2075 is in force for the operation of the social security schemes mentioned in the Act.

The main purpose of this fund is to guarantee the right to social security for those workers who contribute to employment and to provide them with social security.

5.1.1 Contribution-Based Social Security Act:

The Contribution-Based Social Security Act allows both formal and informal sector workers and those engaged in self-employment to be enrolled in social security schemes. This broadens the scope of the fund's operation.

Under this Act, various social security schemes have been implemented, including Medical Treatment and Health Security, Maternity Security, Accident Security, Disability Security, Elderly Security, Sheltered Family Security, and Unemployment Assistance, in addition to the existing Health and Maternity Security programs. The fund is authorized to operate other social security programs as well.

The operational procedures for the implementation of these social security programs are outlined in the Social Security Program Operation Procedure, 2075.

5.1.2 Social Security Program Based on Contributions:

The contribution-based social security scheme was launched on Mangsir 11, 2075 (December 26, 2018) with the slogan "The beginning of the golden age", according to which a total of 31% of the amount, 20% from the employer and 11% from the worker, will be deposited in the Social Security Fund as contribution. This amount will be divided as follows.

S.N	Particulars/Benefits/Schemes	Contribution
1	Medical Treatment, Health, and Maternity Security Scheme	1%
2	Accident and Disability Security Scheme	1.4$%
3	Dependent family security scheme	0,27%
4	Old age security scheme	28.33%
5	Retirement Scheme	20 %
6	Leave Plan:	8.33%

Source: SSF 2023

Thus, 31% of the basic salary of the worker will be deposited in the Social Security Fund. This arrangement ensures that 31% of the basic wage of a worker is deposited in the Social Security Fund.

Retirement Plan:

Under the Retirement Plan, once a worker reaches the age of 60, they will receive the accumulated amount in their retirement account. Additionally, they will receive interest on their accumulated contributions, and the total amount will be used to provide a lifelong retirement pension. Pension amount is calculated by dividing the total amount accumulated in the retirement scheme by 160. To be eligible for retirement benefits, a worker must have reached the age of 60 and contributed for a minimum of 180 months (15 years).

Leave Plan:

The Leave Plan includes contributions of 8.33% of a worker's salary. Under this plan, when a worker reaches their retirement age or upon their death during employment, the worker or their legal heir will receive a lump sum payment equal to the accumulated amount.

As of now, no one has been eligible for retirement under the Elderly Security Program (28.33%) and the Leave Plan (8.33%). Under the Leave Plan, as of Ashwin 1, 2076, 100 individuals received a total payment of NPR 515,640,854.30, and this number increased to 2540 individuals receiving NPR 1,767,363,504.30 in payments as of Bhadra 12, 2078. (Source: Economic Survey 2078/79, page 219)

6. Universal Pension (Social Security allowance)

The social security allowance (Universal Pension), which started in 2051 BS when the Government of Nepal decided to provide a monthly allowance of Rs. 100 to the elderly who have reached the age of 75, is considered as a social pension scheme at the international level. In some cases, it is also called a social security allowance. In this case, the amount of social security allowance and the distribution system are being made effective by continuously increasing the amount and improving the distribution system. This has resulted in some elderly citizens receiving a higher monthly allowance based on their age and economic status.

India also has a scheme called the Indira Gandhi National Old Age Pension Scheme (IGNOAPS), under which monthly allowances of Rs. 200 for people aged 60 to 79 and Rs. 500 for people over 80 are provided. However, it is found that income certificate has to be submitted while providing such amount. However, in Nepal, all rich and poor people are eligible to receive it. However, beneficiaries are required to present proof of their income.

In the early days, the system of making cash payments to individuals at the local level by making a deposit has been improved by making payments through the bank account of the concerned person. The facility which started from Rs. 100 has been increasing and the age limit for receiving the facility has also been improved and the scope of beneficiaries has been increased. The following are the social security programs implemented by the Government of Nepal.

In contrast, Nepal has adopted a universal approach where all elderly citizens, regardless of their economic status, are entitled to receive the allowance. Initially, payments were made in cash at the local level. However, improvements have been made to transition to a bank account-based payment system, which has increased the maximum age limit for beneficiaries and expanded the scope of benefits.

These social security programs have significantly benefited a large number of marginalized and vulnerable individuals in Nepal. The government of Nepal has implemented various social security programs, and the number of beneficiaries and rates of distribution are as follows (source: Economic Survey 2022, page 119):

Table 3

Details of the Social Security Allowances (No. of Beneficiaries and Expenditure)

S.N.	Particulars	Rate (Rs.)	2075/76 (018/19)	2076/77 (019/20)	2077/78 (020/21)	2078/79 (021/22)
	Senior Citizen (68 Years)	4000	993524	1057376	1314201	1322315
	Senior Citizen 60 years-Dalit /Karnali_	2660	287603	300394	206309	212914
	Single Women 60 years	2660	114956	94880	280648	276493
	Widow	2660	605231	658736	350436	360502
	Complete Disabled	3990	43540	48387	55059	63343
	Partially Disabled	2128	74299	83755	105051	128223
	Disappearing Tribal/Tribe	3990	24207	24478	22544	22538
	Children	532	684158	794221	1121198	1216377
	TotalBeneficiaries		2560139	2827518	3455446	3602705
	Expenses Amount (Crore)				6865	9606

Source: Economic Survey, 2022AD

For the distribution of social security allowance through the banking system, 728 local levels have entered into an agreement with the bank and started to make payment through the bank account.

In the fiscal year 2077/78, a total of 34, 55,446 people were provided with social security allowances, while in the period 2078/79, 36,02705 people were given Rs. 6865 to 9606 (in Crore). The data shows that every year the number of beneficiaries and amount has been increasing. It is due to the increase in the monthly allowance for senior citizens from the annual budget of fiscal year 2078/79. The allowance has been increased by 33% to Rs. 4,000 and eligibility age bar for senior citizens also changed 70 to 68 in FY 2079/80.

These measures reflect the government's commitment to expanding and enhancing social security benefits for various groups in society, including senior citizens, orphan children, Dalits, disabled individuals, and impoverished families.

Without any contribution, every year's government budget wouldn't cover and maintain the expenses under this title. It is a huge burden for government treasury. So, there is a concern and queries on its adequacy, extension of coverage and sustainability.

7. The Need for improvement in pension system

When discussing the pension system in Nepal, government employees who were appointed before Shrawan 1, 2076 BS (July 17, 2019 AD) are eligible to receive a pension without any contribution, while those appointed on or after Shrawan 1, 2076 are required to contribute 6% of their salary to the pension fund based on contribution. In both types of pensions, except as otherwise specified, the pension is generally eligible after 20 years of service and is received regularly in monthly installments after retirement. The government office manages the non-contributory pension system for government employees, while the Employee's Provident Fund manages the contribution-based pension system.

However, in the case of employees in the private sector, under the contribution-based social security scheme, the worker is eligible to receive a pension only after he/she has contributed 11% of the amount for at least 15 years (even if he/she has contributed for 15 years, he/she will not receive a pension until he/she reaches the age of 60). In this way, it can be seen that government employees and private sector employees have different contribution amounts and benefits, and also receive different pensions. In this context, while discussing the pension system currently in force, it seems to be looking for an answer to the question of whether some improvement is needed.

In this context, a survey was conducted with 25 people from the group of government employees who were appointed to government service before Shrawan 1, 2076 and can receive a pension without contribution, 25 people from the group who were appointed after Shrawan 1, 2076 and have to contribute 6% of their salary to the contribution-based pension, 25 people from the group who are currently receiving pension, and 25 people from the private sector, a total of 100 people, based on the questionnaire received through direct meeting, telephone, and email. The answers and suggestions received from the survey are presented below. The details of the persons involved in the survey are as follows.

In conclusion, examining the retirement system, especially for government employees, and ensuring that it is equitable and sustainable is a crucial aspect of social and economic policy in Nepal.

Table 4

Respondents details

SN	Description	Female	Male	Total
1	Pensioner (Retirement from Government Service)	9	16	25
2	Employee (who will get pension without any contribution)	10	15	25
3	Employee who contribute 6% of his/her salary for contributory pension Scheme (Government Sector Employee)	13	12	25
4	Contribution inSSF (Private Sector Employee)	11	14	25
	Total	43	57	100

Source: Survey, 2023

7.1 Respondent's views:

(a) Currently, only about 300,000 people out of a total population of 29,742,757 are receiving pension from the government fund. The total expenditure on about 1% of the population is around 5% of the annual budget. Similarly, in the fiscal year 2076/77, a total of 30,62,227 people were provided with social security allowance, and in the period 2077/78 (up to Falgun 2077 BS), 31,50,111 people were given Rs. 58,38,69,55,959.

In response to the question of whether the pension system implemented by the state for all citizens, including government institutions and employees working in the private sector, has been able to cover everyone, Regarding the provision of retirement benefits for government employees, it appears that the government's system collects contributions from all citizens working in government institutions, whether in the public or private sectors, and provides retirement benefits accordingly. Is this system covered to all for pension?

Table 5

Coverage of Pension

Coverage of pension for all	Yes	No	Don't Know
Coverage	15	75	10
Percentage	15%	75%	10%

Source: Survey, 2023

Out of 100 only 15 percent respondents agreed with the coverage of pension in the context of pension for all. Similarly, 10 percent of respondents have expressed they have no idea about the coverage of pension. Most of the respondents or majority were expressed and 75 percent were not satisfied about the coverage of pension.

Those who answered "Yes" said that the pension system covers everyone because there is a provision for both government and private sector employees to receive a pension, either without contribution or with contribution. They also mentioned that the social security allowance is provided to those who are not eligible for a pension.

Those who answered "No" said that the pension system only covers a limited number of government employees, about 1% of the total population. They also mentioned that the pension system for local level employees and teachers is not clear, and that private sector employees are not yet covered by the contribution-based pension scheme. They also expressed concern about the lack of clarity about the benefits that will be provided to those who contribute to the social security fund.

In responses of the above question, some of the respondents' answers are as follows:

· "The current pension system is not able to cover everyone. Only a small number of people are able to receive a pension, and the benefits are also very low. The government should make the pension system more inclusive and provide better benefits to all citizens."

· "The current pension system is biased towards government employees. Private sector employees are not able to receive a pension, even if they have worked for many years. The government should make the pension system more equitable and provide equal benefits to all employees, regardless of the sector they work in."

· "The current pension system is not sustainable in the long run. The government is spending a lot of money on pensions, and this is putting a strain on the budget. The government should reform the pension system and make it more sustainable."

It has been mentioned that the current system allows for retirement benefits to be received from both the government and the private sector, irrespective of contributions made or the basis of the allowance. Is it true that a system exists where individuals can receive retirement benefits without any contributions, and only those who have not received retirement benefits in the previous year are excluded? If so, it seems that this system aims to cover all citizens without distinguishing between those working in the public or private sectors. However, there might be some limitations in the implementation or clarity in certain aspects of this system. Could you provide more details on how this system operates?

b) For government employees, the formula for calculating retirement benefits appears to be based on the total years of service multiplied by the final salary amount, divided by either 40 or 50, depending on the grade. It's mentioned that this system takes into account the salary scale, ensuring that retirement benefits are not less than 50% or greater than 100% of the final salary of an employee. Could you provide further information on how this formula is applied and how it affects the retirement benefits received by government employees? Also, what is the rationale behind choosing the divisor (40 or 50) and the percentage range (50% to 100%)?

These questions aim to clarify and understand the intricacies of the pension system in Nepal.

It is stated that there is a system in place where individuals can receive retirement benefits without any contributions, and this system covers all citizens, including those working in the public and private sectors. However, there might be some limitations in its implementation, and it seems that there is ambiguity in certain aspects of this system. Could you provide more details on how this system operates and what criteria determine eligibility for receiving retirement benefits without contributions? Additionally, what are the specific provisions for government employees, teachers, and individuals in the private sector regarding retirement benefits?

For government employees, the formula for calculating retirement benefits is based on the total years of service multiplied by the final salary amount, divided by either 40 or 50, depending on the grade. It's mentioned that this system ensures that retirement benefits are not less than 50% or greater than 100% of the final salary of an employee. Could you provide further information on how this formula is applied and how it affects the retirement benefits received by government employees? What is the rationale behind choosing the divisor (40 or 50) and the percentage range (50% to 100%)?

These questions aim to gain a better understanding of the retirement benefit system in place in Nepal, particularly its inclusivity, eligibility criteria, and the calculation of benefits for government employees.

The formula for calculating the pension for government employees under the current rules is as follows:

· Pension amount = Total service years X Final salary amount/ 40 or 50 (depending on the grade)

The pension amount is determined in such a way that it is not less than 50% of the salary scale of a person holding the same position and not more than 100%.

Satisfaction level of respondents with the pension amount received (in terms of adequacy) under this system:

Table 6

Level of Satisfaction in terms of adequacy

SN	Description/Satisfaction Level	1	2	3	4	5
1	In retirement, does it provide ease for earning a livelihood?	17	18	57	5	3
2	In retirement, does it become easier to maintain one's standard of living?	15	20	50	10	5
3	In retirement, how important is financial stability in one's lifestyle?	19	26	47	6	2
4	Present provision for the pension, howimportant for continued engagement and work motivation	13	27	52	5	3
5	Is pension amount sufficient?	5	7	65	15	8

Source: Survey, 2023

Overall, the respondents were dissatisfied with the pension system in Nepal. They felt that the system was not fair and that it did not adequately cover all citizens. They also felt that the benefits provided under the system were not enough.

In this context, the retirement benefit system places significant importance on factors such as livelihood, standard of living, lifestyle, and career inspiration when considering retirement. It is suggested that increasing the adequacy of retirement benefit amounts can enhance the level of satisfaction.

The survey also asked for suggestions for further improvement. The following are some of the suggestions:

1. Uniformity in Eligibility: Currently, there is a difference in the eligibility criteria for government employees hired before and after the Nepali calendar date of Shrawan 1, 2076 BS. Uniform eligibility criteria should be established to ensure fairness and equality among all employees, irrespective of their hiring date. To eliminate the discrimination between government employees who were appointed before and after Shrawan 1, 2076.

2. Age of Retirement: The difference in the age of retirement between government and private sector employees should be addressed. While private sector employees can retire after 15 years of service, government employees must serve for 20 years. A consistent retirement age should be implemented to eliminate this disparity.

3. Service Conditions: It is noted that certain provisions, such as a 60-year age limit for retirement benefits in the private sector, are not aligned with international practices. The age limit for retirement benefits should be revised to make it consistent with global standards and to accommodate individuals who enter the job market later in life.

4. Scaling of Retirement Benefits: The provision that retirement benefits should not be less than 75% of the initial scale for employees in the same position is significant. This ensures that retiring employees receive a reasonable percentage of their salary as a pension. To make the pension amount at least 75% of the starting salary scale for the current position.

5. Consideration of International Practices: International retirement benefit systems, which consider age as a key factor (e.g., retirement at 60 or 65), should be studied and potentially adopted for greater uniformity and fairness.

6. Budget Allocation: To sustain the retirement benefit system and accommodate an aging population, it is crucial to allocate a certain percentage of the annual budget to cover these expenses. This will prevent the retirement benefit system from becoming financially unsustainable. To make the pension system sustainable by moving from the traditional (non-contributory) model to a contributory model.

7. Modernization: Explore modernization of the retirement benefit system, possibly adopting models from other countries, to ensure its longevity and adaptability to changing demographics.

These recommendations aim to address the disparities in the current retirement benefit system and ensure that it is equitable, sustainable, and aligned with international best practices.

c) The survey also found that there is a difference in the pension system between the government and the private sector. Government employees are eligible to receive a pension after 20 years of service, regardless of their age, while private sector employees must be 60 years old to be eligible. This difference in the pension age creates an unfair advantage for government employees.

The survey also found that the pension system is not sustainable in the long term. The government is spending a lot of money on pensions, and this is putting a strain on the budget. If the pension system is not reformed, it may eventually have to be scrapped.

The survey respondents were generally dissatisfied with the pension system in Nepal. They felt that the system was not fair and that it did not adequately cover all citizens. They also felt that the benefits provided under the system were not enough.

question scenario

Table 7

Respondents views on pension system

SN	Description	1	2	3	4	5
1	It must be without any contributions	13	17	23	37	10
2	It should be contributory	26	24	37	10	3
3	An eligible employee who is entitled to receive retirement benefits upon retirement must retire.	9	11	57	13	10
4	An eligible employee who is entitled to receive retirement benefits must retire upon reaching the age of 60, even if they retire from service before that age.	13	37	39	8	3
5	An eligible employee who is entitled to receive retirement benefits must retire based on their age limit as determined by their age.	13	27	49	7	4
6	The recent leave must be adjusted based on the average age to determine the retirement age for someone who is currently 58 years old.	27	29	34	9	1

Source: Survey, 2023

Regarding the improvements, it is suggested to study other countries' models, especially those that have faced problems due to an aging population and pension system crises. It's essential to determine how much contribution is made by whom and in what proportion. The pension system should consider providing a higher percentage of the pension amount, starting from a minimum of 75% for employees in lower salary scales and increasing progressively for higher scales.

In the context of retirement and the associated financial contributions and stability, the number of contributions without considering retirement age is increasing compared to those considering retirement age. Additionally, government employees can retire and receive their retirement benefits, but for employees in the private sector, improvements are indicated, such as being able to receive retirement benefits after reaching the age of 60, primarily concerning their health. Regarding the retirement age of 58 years, which is currently in place, most respondents have expressed their preference for setting the retirement age based on average life expectancy. This would ensure that employees work until they are capable of doing so, and would also make it easier to manage the pension fund. Additionally, it would allow for an increase in the amount of the pension.

Recent changes have shifted the focus of determining retirement age from 58 years to the average age. Most have given priority to determining the retirement age based on the average age, which helps ensure that employees work until they reach that age. This contributes to the efficient management of the retirement fund and also allows for an increase in the retirement amount for those who retire at a later age, ensuring a sustainable financial system.

Even if the retirement age is 60, considering a minimum of 25-30 years of service, those who retire after 60-65 years should receive increased retirement benefits and longer-term coverage.

Lastly, to answer the question about the responsibilities of retirement management, the following individuals or entities should be responsible for the process: retirement fund management, government, and employees themselves. These entities must collaborate effectively to ensure a robust and sustainable retirement system.

In terms of the amount of pension and its sustainability, the number of people who say that it should be a contributory (contributory) model rather than a non-contributory model is relatively higher. In addition, the survey found that there is a need for improvement in the system where government employees receive a pension immediately after retirement, while private sector employees only receive it after they reach the age of 60.

In response to the question of what improvements should be made to the current system, the following suggestions were made:

· The pension system should be moved to a contributory model.

· The pension amount should be at least 75% of the salary of a person in the same position.

· The retirement age should be set based on average life expectancy.

· The pension should be payable after 25-30 years of service or after the age of 60-65.

The survey also asked who should be responsible for the administration, management, and sustainability of the pension system. The following were the most common responses:

Table 8

Responsible entity for pension

Responsible Authority for pension	No of Respondents
Government only	15
Employeer only	0
Government and Employeer	25
Government, Employeer and employee	60

Source: Survey, 2023

Fifteen percent's of respondents express their views as, the government should be responsible for the administration and management of the pension system. No any onesuggests to private sector should be responsible for the administration and management of the pension system. 25 percents of respondents views are the Government and employeer should be responsible for the administration and management of the pension system. Most of the respondents that is 60 percent's are suggest as a combination of the government, private sector, and employees should be responsible for the administration and management of the pension system.

Respondents views on the question, "In contributory pension system, employee should contribute some percentage of salary, in this case "how many percentage of salary would be appropriate to contribute for pension with contribution percentage of employee, employer and government?"

Table 9

Contribution percentage of employee, employer and Government for pension

Particulars	Government	Government &Employer	Government, Employer& Employee
100 percent by Government	15
Government &Employer (50/50)		35
Employer & Employee (50/50%)		10
Government, Employer & Employee (33.33% each)			40

Source: Survey, 2023

In the context of the lack of uniformity in the current pension system and the issue of sustainability, considering the principles of equity and long-term planning, it is suggested that attention should also be given to individuals such as Mr. Bhatragar, who are in a lower salary scale at the beginning of their careers but expect to reach a higher scale before retirement. This can be achieved by increasing the service period requirement from the current 20 years to 25 years in the minimum scale before becoming eligible for pension benefits. Additionally, even if retirement is allowed after reaching the age of 60, the provision of pension should be available, but for elderly individuals like Mr. Bhatragar, who may face health issues, a health insurance plan provided by the government could be a suitable solution.

By making these changes, the pension system can become more equitable and sustainable. This approach aligns with "Insurance for All, Human Rights, Equal Access to Rights through the Constitution etc", which highlight the need for social security and the government's role in ensuring that all citizens have equal access to such benefits. The state should formulate appropriate policies and regulations to further organize and enhance social security for all its citizens.

In conclusion, addressing the issues of equity, long-term sustainability, and catering to the needs of individuals with varying career trajectories, such as Mr. Bhatragar, is crucial for improving the current pension system and ensuring that it serves the diverse needs of the population effectively.

8. Conclusion

The World Bank Group plays a pivotal role in assisting governments in the examination, conceptualization, and enhancement of pension and social insurance frameworks. These endeavors are oriented towards enhancing the inclusivity of pension systems, fortifying the financial viability of these initiatives, and ensuring substantial assistance to safeguard vulnerable populations from descending into destitution. These objectives prominently underscore the most recent revision of the World Bank's social protection strategy. Moreover, the domain of Social Protection has expanded its scope to encompass the encouragement of extended working lifespans and the provision of extended care, in direct response to the requirements posed by aging demographic cohorts.

Globally, more than two-thirds of government expenditure is allocated to social services catering to the elderly, disabled, and survivors through pension programs. These substantial and expanding initiatives face a myriad of challenges within the context of an aging population, challenges that the World Bank actively engages with governments to address:

1. Coverage: It is noteworthy that merely one in three workers worldwide contributes to a pension scheme, with this ratio plummeting to one in ten in low-income countries. Nevertheless, progress has been achieved in various nations through the extension of non-contributory and social programs.

2. Sustainability: A considerable majority of public pension schemes confront fiscal insustainability, rendering them incapable of fulfilling their commitments to future generations of retirees.

3. Adequacy: Fiscal constraints have led to the expansion of social and non-contributory pensions at the expense of ensuring a sufficient level of pensions. As a minimum standard, social pensions should cover poverty gaps and also provide adequate resources to meet the healthcare needs of elderly individuals and those with disabilities.

4. Efficiency: Despite the presence of well-conceived strategies to reduce costs along the entire value chain, the expenses associated with many private pension systems remain persistently high. Furthermore, pension fund assets are not invariably invested in productive, long-term ventures.

5. Security: In cases where assets are available for investment, they must be subject to secure governance, investment practices, and oversight. Additionally, individuals should possess unique identifiers to facilitate the tracking and disbursement of contributions and claims, thereby ensuring the fulfillment of pension commitments over the long term.

6. Support for Productive Aging: The aging population necessitates the extension of their working lives to adapt to shifting demographic patterns. Maintaining the productivity and employability of older workers demands skills development programs that specifically cater to this demographic.

7. Long-Term Care: The costs associated with long-term care can impose significant financial burdens on elderly individuals, those with disabilities, and their households. These costs can adversely affect their ability to cope with illness or nutritional challenges.

In general, the current pension system is not uniform. Considering the overall and sustainability, the respondents suggested that the current non-contributory model can be changed to a contributory model. The pension amount should be equal to the current starting salary scale for the same position. This can be done by increasing the service period from 20 years to 25 years. The pension can be paid immediately after retirement, but it would be more appropriate if the government can arrange for complete treatment through insurance plan for the elderly as they are more prone to health problems.

This will ensure that all citizens of the state have equal access to social security, in line with the slogan "Social security for all", human rights, and rights guaranteed by the constitution. The state should formulate appropriate policies and regulations and make further arrangements for social security of all citizens.

References:

Achenbaum, Andrew (1986). Social Security: Visions and Revisions. U.S.: Cambridge University Press.

Badal, R. (2005). Social security system in Nepal, Kathmandu: GEFONT.

Benavie, Arthur (2003). Social Security Under the Gun: What Every Informed Citizen Needs to Know About Pension Reform. New York: Palgrave Macmillan Gramlich.

Bhattacharya, V. R. (1970). Towards Democracy and Social Justice, Social Security Measures in India. Delhi: Metropolitan Book.

Burgess, R., & Stern, N. (1991). Social Security in Developing Countries: What, Why, Who, and How?, Social Security in Developing Countries. UK: Clarendon Press Oxford.

Edward, M. (1998). Is It Time to Reform Social Security? Ann Arbor: Univ. of Michigan Press.

Gautam, G.S.(2007). Social Security Arrangement in Nepal:Restructuring the System with Reference to Asian Experience. Japan: Osaka Sangyo University.

Government of Nepal. (2023). Pension policy of Nepal. Kathmandu, Nepal: Ministry of Finance

Hasan, Saiyid Zafar (1969). Social Security in India: Limited Resources, Unlimited Needs (Social Security in International Perspective, edited by Shirley Jenkins). New York: Columbia University Press.

Holzmann, R., Packard, T., & Cuesta, J. A. (2000). Extending coverage in social insurance: The emerging challenge of non-contributory pensions. The World Bank Research Observer, 15(1), 27-49.)

International Labour Organization. (2006). Social Security (Minimum Standards) Convention, 1952 (No. 102).

Pathak, P.K. (1986). Social security in Nepalese civil service. Kathmandu: CDPA (unpublished Thesis)

The World Bank. (2023). Pension policy: A global perspective. Washington, DC: World Bank.

Toshihiro Ihori and Toshiaki Tachibanaki ( 2002 ). Social Security Reform in Advance Countries Evaluating pension finance. London and New York: Taylor & Francis Group

[1](Phd Research Scholar, Mphil, MA(Socio), MA(Eco), BA, BEd, BL)

REFORMING PENSION SYSTEM IN NEPAL

2024-04-27T11:50:00.002+06:00

REFORMING PENSION SYSTEM IN NEPAL

Dilip Raj Paudel, PhD Research Scholar, Pokhara University, Kaski, Nepal

Senior Manager, Pension Management Division, Employees Provident Fund, Kathmandu, Nepal

Email: diliprpaudel@hotmail.com

Abstract

Purpose: The pension system in Nepal is pivotal for safeguarding social security and financial stability among its aging populace, yet it grapples with substantial hurdles, encompassing demographic transformations, insufficient funding, and operational inefficiencies. The primary aim is to investigate and analyze different facets of Nepal's pension system, assessing its adequacy, coverage, and sustainability.

Design/Methodology/Approach: This study utilized a mixed-method approach, combining primary survey data from 237 respondents with secondary data from the Pension Management Office. Employing a descriptive research design, it aimed to offer insights into the current state of Nepal's pension system and stakeholders' perceptions.

Findings: The findings revealed widespread dissatisfaction among respondents regarding the current provision of pension benefits, highlighting the urgent need for reforms. Key reform priorities identified included raising the retirement age, expanding coverage to the informal sector, increasing contribution rates, improving efficiency and management, and enhancing public awareness.

Research limitation/ Implications: This study exclusively focused on the pension system, neglecting other components of social security benefits that many influence individuals' motivation. Likewise, this study totally relied on descriptive analysis restricting its capacity to establish causal relationships. Likewise, this insight provides valuable guidance for policymakers in developing comprehensive reform strategies to address the systemic challenges and shortcomings in Nepal's pension system, ensuring its long-term sustainability and adequacy for future retirees

Key Words: Sustainability, Adequacy. Coverage, Pension, Contributory

JEL Classification: H55, I38, J26

Introduction

The discourse surrounding pension systems has evolved over time in response to changing demographic landscapes, economic pressures, and social welfare paradigms. Historically, pension systems emerged as a means to provide income security for aging populations, primarily in industrialized nations experiencing demographic transitions (Schwarz et al., 2014). However, with the rise of globalization, technological advancements, and shifts in labor markets, traditional pension models have come under scrutiny for their sustainability and adequacy in meeting the needs of modern societies (Torre & Rudolph, 2018). Scholarly research on pension systems spans various disciplines, including economics, sociology, and public policy, reflecting the multidimensional nature of pension reform. Studies have explored diverse topics such as pension design, funding mechanisms, retirement age dynamics, and the impact of pension reforms on individual behavior and societal outcomes. The literature highlights the complexities inherent in pension systems, underscoring the need for holistic approaches that balance financial viability with social equity objectives (Zhu & Walker, 2018).

Presently, pension systems worldwide exhibit a diverse array of structures, ranging from publicly managed pay-as-you-go schemes to privately administer funded systems. While some countries have implemented comprehensive pension reforms to address demographic challenges and fiscal constraints, others continue to grapple with unsustainable pension liabilities and inadequate coverage (Altiparmakov, 2018). This heterogeneity underscores the importance of context-specific policy responses tailored to each nation's socio-economic context. The World Bank's categorization of pension structures in 1998 remains influential, especially in Central and Eastern European countries undergoing economic reforms (Arza, 2012). It delineates three pillars: a state-administered basic pension system, a funded system with contributions from beneficiaries and employers, and voluntary privately funded accounts. The main goal of pension provision is to ensure retirees receive a sufficient, secure, and sustainable income (Schwarz, 2006). However, with rising life expectancy, policymakers face the challenge of maintaining pension system longevity while distributing costs equitably among generations.

The study of pension reform often draws upon theoretical insights from economics, sociology, and political science to analyze the complex interplay of factors shaping pension policy outcomes. Methodologically, researchers employ diverse approaches, including econometric modeling, qualitative case studies, and comparative policy analysis, to assess the impact of pension reforms and identify best practices for achieving policy objectives. Moving on to the specifics of pensions, they serve as financial reserves allocated over an employee's active working years, providing support during retirement through periodic payments (Lindbeck & Persson, 2003). Two main types exist: defined benefit plans and defined contribution plans, each with distinct payment structures. It's essential to differentiate between pensions and severance pay, as the former entails regular installments throughout retirement, while the latter typically involves a lump-sum payment upon job termination. Moreover, occupational pensions, initiated by employers for employees' benefit, are integral to retirement planning (Holzmann, 2013). Data on the evolution of pension systems in Nepal reveal a growing number of pensioners alongside demographic aging trends. As life expectancy increases and fertility rates decline, the proportion of elderly individuals reliant on pension benefits is expected to rise, placing strain on existing pension schemes. Understanding these demographic shifts and their implications for pension financing is crucial for policymakers seeking to navigate the challenges of population aging (Martín, 2010).

Despite extensive scholarly attention, significant gaps persist in our understanding of pension systems' functioning and effectiveness, particularly in emerging economies such as Nepal. Limited empirical research exists on the specific challenges facing pension systems in these contexts, including issues of coverage, adequacy, and governance. Addressing these gaps is essential for informing evidence-based policy interventions and ensuring the long-term sustainability of pension provision. Ultimately, the primary aim is to investigate and analyze different facets of Nepal's pension system, assessing its adequacy, coverage, and sustainability. Based on this analysis, recommendations for reform will be formulated to ensure the pension system's long-term viability and efficacy in meeting the needs of Nepal's aging population.

In Nepal, the need for pension reform is particularly pressing given its rapidly aging population and nascent social security infrastructure (Chalise et al., 2022). Despite recent initiatives to expand pension coverage and enhance benefit adequacy, significant challenges remain in ensuring equitable access to pension schemes, especially for marginalized and informal sector workers. The evolving socio-economic landscape of Nepal underscores the urgency of reform efforts to safeguard the financial well-being of its elderly population and promote inclusive development. In Nepal, as elsewhere, urgent modernization of pension systems is necessary to ensure financial sustainability amid rapid population aging. Research gaps exist concerning the adequacy, coverage, and sustainability of Nepal's social security system and pension benefits. Thus, this study aims to analyze Nepal's pension system comprehensively, evaluating current policies, practices, and overall sustainability. Hence, the topic of pension reform holds immense significance for fostering social inclusion, economic resilience, and intergenerational equity. By examining the evolution, challenges, and opportunities of pension systems, this study aims to contribute to a deeper understanding of pension policy dynamics and inform evidence-based reforms tailored to the specific needs of Nepal and beyond.

Literature Review

Pension Funds and Capital Market Development

Pension funds have emerged as significant contributors to the development of capital markets, as evidenced by various scholarly works (Meng & Pfau, 2010; Raddatz & Schmukler, 2008). While there are several channels through which institutional investors foster capital market growth, certain prerequisites must be met for pension assets to effectively stimulate market development (Meng & Pfau, 2010). One crucial precondition is the level of financial development, with higher levels of financial development amplifying the impact of pension funds. The symbiotic relationship between pension funds and financial markets thrives in well-developed financial ecosystems, where optimization levels are maximized (Vittas, 1999).

Distinguishing pension assets from household assets, it's noted that their long-term outlook enables them to provide a stable, long-term source of funds to capital markets, particularly in bond markets, thereby fostering financial development (Meng & Pfau, 2010; Vittas, 1996)). Moreover, the sheer size of pension assets allows for greater investment diversification into equities and bonds compared to household portfolios (Babalos & Stavroyiannis, 2020). Empirical studies by (Daradkah & Al-Hamdoun, 2021; Hu, 2005) have confirmed that the increased size of pension assets stimulates private bond finance both in the short and long run. Beyond mere financial injection, pension systems exhibit behaviors that reduce transaction costs, diversify risks, and possess superior information processing capabilities, thereby enhancing resource allocation efficiency within financial intermediaries (Assefuah et al., 2023). These traits align with factors in financial markets known to bolster growth (Levine, 1997; Moleko & Ikhide, 2017). Furthermore, stock markets, driven by pension fund investments, incentivize long-term investments, further contributing to economic growth.

Pension funds also enhance competitiveness in the loan and securities markets by competing with the banking sector, leading to improved market efficiency and reduced capital costs for firms and households (Grujić, 2019). Additionally, the qualitative impact of pension funds in driving financial innovation, modernizing infrastructure, and enhancing regulations highlights their role in advancing the overall efficiency and transparency of financial sectors (Zubair, 2016). Analyzing the impact on aggregate private savings, it's observed that pension assets stimulate investment, subsequently boosting output. However, the magnitude of this impact depends on the pension system's design and the manner in which governments finance pension reforms, which may erode personal savings (Stewart et al., 2017). Transitioning from 'Pay As You Go' to ‘Fully Funded Schemes’ may raise implicit debt, necessitating careful examination of country-specific debt levels and tax conditions to ensure the sustainability of savings (Barber & Ghilarducci, 2016; Murphy & Musalem, 2004).

Therefore, pension assets not only accelerate capital market development but also improve welfare conditions. The composition of pension systems, influenced by labor market dynamics, demographic transitions, and public finances, shapes their impact on economic growth and social welfare. Through a judicious mix of public and private pension schemes, countries can leverage pension assets to enhance market efficiency, reduce transaction costs, and stimulate growth, thereby fostering economic prosperity and social welfare.

Pension Indicators: Key Metrics for Reforming Pension Systems

In an era marked by global turbulence, governments play a pivotal role in providing social security to citizens. Among various forms of social security, pensions stand out as a crucial element ensuring financial stability in old age (Gillion, 2000). The dynamic evolution of pension policies on a global scale, driven by challenges posed by aging populations, has spurred a call for international benchmarks in pension metrics (Pensions Commission, 2004). The World Bank, emphasizing fiscal sustainability, has adapted its stance over time, grappling with the complex task of administering social security universally, while ensuring retirement benefits' adequacy and safeguarding against economic uncertainties (Heijdra & Romp, 2009). Some of the key indicators of Pensions are highlighted as below (World Bank, 2012):

Demographic Indicators: Population aging and dependency ratios impact the financial sustainability of pension systems.

Financial Indicators: Contribution rates, replacement rates, and benefit-to-contribution ratio assess the financial health and efficiency of the system.

Coverage Indicators: Coverage rate and formal vs. informal sector coverage reveal access gaps and social inequalities.

Adequacy: Focuses on benefits provided relative to retirees' income needs, often assessed through replacement rates.

Sustainability: Evaluates the long-term financial viability considering demographic trends, fiscal health, and future costs.

Governance: Assesses the efficiency of pension system management, including transparency, accountability, and regulatory frameworks.

Equity: Examines the fair distribution of benefits across demographic groups, income levels, and socioeconomic statuses.

These indicators serve as vital tools for assessing the performance and impact of pension systems. By focusing on key metrics such as coverage rate, replacement rate, sustainability ratio, benefit adequacy, and administrative efficiency, policymakers can identify areas for improvement and implement targeted reforms to enhance retirement security for individuals. Drawing on insights from previous studies, it is evident that leveraging pension indicators is essential for driving positive change, promoting financial well-being among retirees, and ensuring the long-term sustainability of pension systems.

Pension System in Nepalese Context

The history of Nepal's pension system traces back to 1936, with the establishment of the first formal scheme for army personnel, followed by provisions for civil servants in 1959. Over time, reforms aimed at expanding coverage and enhancing benefits led to the introduction of the Social Security Scheme (SSS) in 1994 and the Senior Citizen Allowance (SCA) program in 1995 to provide allowances to citizens aged 70 and above (Chaudhary & Ghimire, 2023). The modern Nepalese pension system comprises various elements, including contributory and non-contributory schemes targeting different segments of the population (Adhikari, 2021). Major changes and reforms have aimed to address challenges such as demographic aging, fiscal sustainability, and social protection. Efforts have been made to extend coverage to informal sector workers through voluntary schemes and enhance benefit adequacy (Pandey, 2021).

The beneficiaries of Nepal's pension system encompass government employees, formal sector workers, retirees, and their dependents (Bhandari, 2019) While progress has been made in expanding coverage and enhancing benefit adequacy, challenges remain in ensuring inclusive access and long-term sustainability. Scholarly works by Nepalese writers highlight the need for a national pension policy, defined contribution pension systems, and institutional capacity building to address these challenges (Bhandari, 2015). Studies by (Paudel, 2016) and the (World Bank, 2017) highlights the sustainability challenges posed by Nepal's aging population and declining workforce, while research by the (ILO, 2018) highlights the limited coverage of formal schemes, leaving a substantial portion of the informal sector workforce without protection. In addition, scholarly research on the Nepalese pension system has emphasized into coverage, adequacy, governance, and sustainability, with Nepalese authors offering insights through empirical studies, policy analyses, and theoretical frameworks (Wagle, 2015). (Sharma et al., 2018) analyze recent pension reforms' impact on coverage and adequacy, (Thapa, 2019) offers a comprehensive overview of the system's evolution, and Karki (2020) explores barriers to pension access among informal sector workers, suggesting policy recommendations for improved coverage (Karna, 2019). Thus, findings revealed sustainability challenges due to an aging population and declining workforce, alongside limited coverage of formal schemes, while Nepalese authors contribute insights into coverage, adequacy, governance, and sustainability through empirical studies and policy analyses. Hence, Nepal's pension system has undergone significant transformation to address the evolving needs of the population.

Reforming the Social Security and Pension System in Nepal is an imperative task considering the evolving demographics and economic landscape of the country. As of the latest available information, the current status of the social security and pension system in Nepal reflects a mix of challenges and efforts towards improvement (Rai, 2018).

Stakeholders involved in this process include the government, various political parties, non-governmental organizations (NGOs), international organizations, and civil society groups. The government of Nepal has recognized the need for reform and has initiated several steps towards improving the social security and pension system. Plans from stakeholders often revolve around increasing coverage, ensuring sustainability, enhancing benefits, and improving administration and governance (Paudel, 2016). As for systemic shortcomings, Nepal faces challenges such as low coverage rates, inadequate benefits, weak institutional capacity, lack of awareness, and informality in the labor market. To address these issues, stakeholders are focusing on implementing reforms that aim to expand coverage to marginalized groups, strengthen governance structures, increase contribution rates, improve investment strategies to ensure the sustainability of pension funds, and enhance public awareness about the importance of social security and pension schemes (Paudel, 2017).

One significant initiative to address systemic shortcomings is the ongoing collaboration between the government, international organizations, and civil society groups to develop and implement comprehensive reforms. These reforms aim to address the root causes of the challenges faced by the social security and pension system in Nepal. Additionally, efforts are being made to enhance data collection and analysis to better understand the needs of the population and tailor policies accordingly. Moreover, capacity-building programs are being conducted to strengthen the skills of government officials and other stakeholders involved in the administration of social security and pension schemes.

While Nepal's social security and pension system face significant challenges, stakeholders are actively engaged in reform efforts to improve the current status. By addressing systemic shortcomings through collaborative initiatives and comprehensive reforms, Nepal aims to create a more inclusive, sustainable, and effective social security and pension system that meets the needs of its population.Currently Governments sectors Contributory pension fund managed by Employees Provident Fund (EPF) by the Pension Management Act 2018 (2075 BS), EPF has managed provident fund since 1962 (2019 BS) under the Employees Provident Fund Act 1962, so need to merge both act to manage systematic management for the retirement fund in government sectors employees. Before starting this system, Government of Nepal has managed the pension for all government employee through the Pension management office (PMO) by the government budgetary funding each year, there is no any fund-based system. Similarly, Social Security Fund has managed Contributory Social Security schemes including pension for private sectors employee since 2019 (2076 BS). Pension's provision is different (Paudel, 2023).

Reforming Social Security and Pension Systems in Nepal

Nepal's social security and pension systems are under significant strain due to demographic shifts, limited coverage, and financial challenges, necessitating urgent reforms for sustainable and equitable protection (Khatiwada & Koehler, 2014). Nepal faces a notable demographic transition, with projections indicating a staggering 266% increase in the population aged 60 and above by 2050, intensifying pressure on existing systems (Maharjan et al., 2021). Glaring gaps in coverage, particularly for the informal sector, exacerbate the issue, with the Social Security Scheme primarily targeting private sector employees in larger establishments. Additionally, financial sustainability poses a considerable challenge, with insufficient contribution rates highlighted by the World Bank, further widening the gap in the Civil Service Pension Scheme (Dhakal & Aryal, 2022). Previous studies, including those by (Paudel, 2016), (ILO, 2018), and (Human Rights Watch, 2023), emphasize the critical need for comprehensive reform to address systemic shortcomings in Nepal's social security and pension systems. To tackle these challenges, a multifaceted reform agenda is necessary, encompassing expanding coverage to integrate the informal sector, adjusting contribution rates for long-term sustainability, and enhancing efficiency and governance to combat corruption. Hence, reforming social security and pension systems in Nepal is crucial to address the challenges of limited coverage, inadequate schemes, and financial sustainability. Scholars (Mathers, 2020; Dhakal & Aryal, 2022) stated that introducing mandatory and voluntary schemes, increasing benefit adequacy, and implementing financial sustainability measures, the pension system can be made more inclusive, sustainable, and efficient, ultimately promoting financial security for all Nepalese citizens.

Methodology

The research design adopted for this research is descriptive, which is suitable for providing a detailed description of the phenomena under investigation. The sampling design utilized in the study combines convenient (judgmental) methods, ensuring a proper representation of the population.

Data collection techniques included questionnaires for primary data gathering from pensioners and employees and interactions and open interviews with key informants involved in service delivery and policy formulation. Both quantitative and qualitative data have been collected to address the research objectives.

In this study, a mixed-method approach was employed to investigate the challenges and potential solutions surrounding pension reform. The methodology involved both primary and secondary data sources, with data collected from 237 respondents through surveys and supplemented by secondary data obtained from the Pension Management Office (PMO). The research design adopted a descriptive approach to provide a comprehensive understanding of the current state of Nepal's pension system and the perceptions of stakeholders.

Primary data collection involved surveying a diverse sample of respondents to gauge their satisfaction levels regarding the provision of pension benefits and their perceptions of pension system reforms. The survey instrument included Likert-scale questions to assess satisfaction levels and open-ended questions to capture respondents' insights on reform priorities. Secondary data obtained from the PMO provided quantitative information on pension beneficiaries, annual pension expenditures, and trends over time. The analysis focused on key areas of concern within Nepal's pension system, including the growing number of pension beneficiaries, disparities in retirement ages, and escalating pension expenditures. Additionally, the study examined respondents' perceptions of the adequacy and effectiveness of pension benefits and their views on the potential impact of pension system reforms. Cross-tabulation analysis was conducted to explore potential demographic differences in respondents' perspectives, particularly concerning age-related variations.

The key respondents in the study were carefully selected based on the study's purpose. The external validity of the findings of study was ensured through selection of participants based on a specific criteria relevant to the research question. Expert consultation, comparative discussion of the output with other national and international research has helped to ensure validity of the study. This study can be replicated under the same conditions as it was follow structured and planned framework for data collection and analysis process.

Result and Analysis

Pension Beneficiaries and Annual Pension Increment in Nepal

The Pension Management Office, established as the official institution overseeing retired employees' records, plays a pivotal role in disbursing monthly pensions to civil servants, police, army personnel, and teachers across Nepal via commercial banks. Pensions are being given to civil servants, army and police personnel and teachers. The following graph illustrates the number of pensioners from the Fiscal Year 2014/15 to 2021/22 (FY 2071/72 to 2078/79 B.S.). There is no doubt that the amount of pension and the number of pensioners is growing around the board.

Figure 1: Number of Pension Beneficiaries in Nepal

Source: (PMO, 2022)

Pension Beneficiaries in Nepal

Figure 2: Total Number of Pension Beneficiaries in Nepal

Source: (PMO, 2022)

Annual Expenditure in Pension

Figure 3 represents the government’s annual expenditure in pension from FY 2014/15 to 2021/22 (2071/72 to 2078/79 B.S.). Here, we can see that the amount of increment in pension is increasing every year.

Figure 3: Annual Expenditure in Pension (in Lakh)

Source: (PMO, 2022)

The figure 2.3 and Table 2.1 illustrates that the year 2021/22 has seen the all-time high pension amount that is NRs. 64 arab 1 crore 98 lakh. The data shows that, there is an increment of 18.23%, 3.52%, 37.77%, 8.22%, 9.59%, 21.69%, 3.72% and 15.60% from fiscal year 2014/15 to 2021/22 (2071/72 to 2078/79 B.S.) in the order of FY respectively. The pension liability is increasing every year.

Table 1: Annual Increment of pensioners, pension expenditures and average income of pensioners

FY	Total No. of Pensioners	Percentage of Increment of Pensioners (No)	Pension Expenditure (Rs. In Lakh)	Percentage of Annual Increment of Pension Expenditure	Average Pension Income per Year (Rs.)	Average Pension Income Per Month (Rs)
2013/14 (70/71)	128415		220000		171319.55	14276.629
2014/15 (71/72)	183996	43.28	260106	18.23	141365.03	11780.419
2015/16 (72/73)	196198	6.63	269272	3.52	137245.03	11437.086
2016/17 (73/74)	206964	5.49	370982	37.77	179249.53	14937.461
2017/18 (74/75)	218500	5.57	401490	8.22	183748.28	15312.357
2018/19 (75/76)	231311	5.86	440000	9.59	190220.09	15851.674
2019/20 (76/77)	251936	8.92	535430	21.69	212526.20	17710.516
2020/21 (77/78)	268005	6.38	555358	3.72	207219.27	17268.272
2021/22 (78/79)	283175	5.66	641980	15.60	226707.87	18892.322

Source: (PMO, 2022)

Nepal faces a pressing challenge in managing its pension system. The national budget allocates 4.5% to social security, with both the number of pensioners and the pension fund liability rising steadily (Figure 2, Table 1). This unsustainable trajectory necessitates immediate government action to address the long-term financial implications and contingency liabilities. Contributing factors include the lower retirement age of 58 for civil servants, compared to other groups like teachers (63) and judges (65). This disparity, coupled with increasing life expectancy, significantly impacts the government's financial burden. While the Parliamentary State Affairs and Good Governance Committee proposed raising the retirement age to 60, the parliament's endorsement is pending. This provides an opportunity to explore further extensions (2-5 years, reaching 63-65 years) based on life expectancy data and potential impact on specific sectors.

Learning from international best practices and conducting comprehensive studies are crucial for designing effective solutions. These might include adjusting pension formulas, exploring alternative financing mechanisms (employer-employee contributions, private schemes), and promoting public awareness about the importance of saving for retirement. By taking proactive steps, Nepal can ensure the long-term sustainability of its pension system and the well-being of future generations of retirees.

Level of satisfaction in terms of amount on Provision of Non-Contributory Pension system

Among the 237 respondents surveyed, the satisfaction level regarding the provision of non-contributory pension systems for government employees, managed by the PMO, is notably low, with 24.05% expressing 'little' satisfaction and 11.39% indicating 'very little' satisfaction. Conversely, only 12.66% view the provision favorably, suggesting a need for improvement. Similarly, the contributory pension system for government employees overseen by the EPF also faces criticism, with 24.5% of respondents expressing dissatisfaction and 15.20% showing satisfaction, while the majority (60.3%) deem the system as moderate, signaling a necessity for enhancement. The contributory pension system for private sector employees, managed by the SSF, also falls short of expectations, as highlighted by 49.40% of respondents expressing dissatisfaction and only 25.3% expressing satisfaction. The remaining 37.6% view the system as average, underscoring the need for improvements in pension benefits across sectors.

In nutshell, the data from Table 2 indicates a prevailing dissatisfaction among respondents regarding the adequacy of pension benefits provided by the PMO, EPF, and SSF. This underscores the urgent need for enhancements to current pension provisions to better meet the satisfaction of employees, both in government and private sectors.

Table 2: Level of Satisfaction in terms of Amount on Provision of

Level of Satisfaction in terms of Amount on Provision of
	Non-Contributory Managed by PMO		Contributory Managed by EPF		Contributory Managed by SSF
	N	Percent	N	Percent	N	Percent
Very Little	27	11.39%	31	13.1%	28	11.8%
Little	57	24.05%	27	11.4%	89	37.6%
Moderate	123	51.90%	143	60.3%	60	25.3%
High	25	10.55%	30	12.7%	45	19.0%
Very High	5	2.11%	6	2.5%	15	6.3%
Total	237		237		237

Source: (Field Survey, 2022)

Likewise, respondents' response regarding the adequacy of the present provision of pension amounts to sustain daily expenses in retirement is captured in Table 2.3

Table 3: Level of Satisfaction on Present provision of Pension Amount Maintaining the Daily Expenses and Maintaining the Living Standard

Level of Satisfaction on Present Provision of Pension Amount Maintaining in terms of
	Daily Expenses		Living Standard
	N	Percent	N	Percent
Strongly Disagree	18	7.59%	24	10.13%
Disagree	66	27.85%	94	39.66%
Neutral	48	20.25%	73	30.80%
Agree	98	41.35%	43	18.14%
Strongly Agree	7	2.95%	3	1.27%
Total	237	1.00	237	1.00

Source: (Field Survey, 2022)

Respondents largely agreed that the existing pension amount is beneficial for maintaining daily expenses, with 41.35% expressing strong agreement and 2.95% indicating some level of agreement. However, a notable proportion, 20.25%, remained neutral on this matter. Conversely, only 35.44% of respondents disagreed that the pension amount could sustain daily expenses in retirement. Analysis suggests a mixed perception among respondents regarding the adequacy of pension benefits for meeting daily expenses, with a significant portion expressing concerns.

Regarding the maintenance of living standards in retirement, respondents exhibited less optimism. Only 18.14% agreed that the current pension provision could support their living standard, while 1.27% partially agreed. Again, a substantial 30.80% remained neutral on this aspect. However, a majority of respondents, accounting for 49.79%, disagreed that the pension amount could maintain their living standards post-retirement. This sentiment underscores concerns about the adequacy of pension benefits to sustain a comfortable lifestyle after retirement. Hence, the data indicates dissatisfaction with the current pension provisions, suggesting a need for reform. The majority of respondents perceive the pension amount as insufficient to meet both daily expenses and maintain living standards in retirement. Consequently, there is a clear call for improvements to the existing pension system to ensure financial security and well-being for retirees.

Perceived Impact of Pension System Reforms in Nepal

Survey responses from 237 individuals in Nepal regarding their perception of the impact of pension system reforms on retirement planning, financial security, and overall well-being.

Table 4: Perceive Impact of Pension System Reforms in Nepal

Impact Area	Strongly Positive (%)	Somewhat Positive (%)	Neutral (%)	Somewhat Negative (%)	Strongly Negative (%)
Retirement Planning	12 (5.1%)	58 (24.5%)	92 (38.8%)	47 (19.8%)	28 (11.8%)
Financial Security	8 (3.4%)	42 (17.7%)	105 (44.3%)	53 (22.3%)	29 (12.3%)
Overall Well-Being	5 (2.1%)	35 (14.8%)	120 (50.6%)	55 (23.2%)	22 (9.3%)

Source: (Field Survey, 2022)

The table 4 shows that a significant portion of respondents (38.8% for retirement planning, 44.3% for financial security, and 50.6% for overall well-being) hold a neutral stance on the perceived impact of reforms. While a minority expresses positive views (ranging from 5.1% to 24.5%), a notable number also express negative concerns (ranging from 11.8% to 23.2%).

Likewise, Table 5 reveals a potential connection between age and perceived impact on financial security. Younger individuals (20-30) express a higher percentage of both positive and negative views compared to older age groups (31-40 and 41-50), with a larger portion in the latter groups holding neutral stances. This suggests that younger individuals might be more concerned about potential uncertainties associated with reforms, while older individuals may be more cautious due to their closer proximity to retirement.

Table 5: Cross-tabulation: Age Group and Perceived Impact on Financial Security

Age Group	Somewhat/Strongly Positive (%)	Neutral (%)	Somewhat/Strongly Negative (%)
20-30	20 (22.2%)	45 (50.6%)	25 (27.2%)
31-40	18 (19.8%)	62 (68.1%)	10 (11.1%)
41-50	4 (4.4%)	73 (80.6%)	13 (14.4%)

Source: (Field Survey, 2022)

In Nutshell, this analysis highlights the mixed public perception regarding the impact of pension system reforms in Nepal. While a significant portion remains neutral, others express both positive expectations and concerns. The cross-tabulation analysis suggests a potential age-related difference in perspectives, with younger individuals exhibiting a wider range of views compared to older groups.

Respondents Insights Regarding Factors Contributing to the Pension Systems Reforms

Upon surveying 237 respondents regarding the necessary reforms in Nepal's pension system and the contributing factors an open-ended question was asked to respondent where several key insights emerged. The respondents highlighted various reforms needed to address the current shortcomings in the pension system.

Table 6: Respondents Insights to Open-ended Question

Theme	Frequency	Percentage	Example
Raising Retirement Age	67	0.283	"Increasing the retirement age to ensure long-term financial sustainability"
Expanding Coverage to Informal Sector	60	0.253	"Bringing informal sector workers into the formal pension system for wider protection."
Increasing Contribution Rates	55	0.232	"Adjusting contribution rates to ensure sufficient funds for future retirees."
Improving Efficiency and Management	35	0.148	"Combating corruption and improving efficiency within the pension system."
Enhancing Public Awareness	20	0.084	"Educating the public about the importance of saving for retirement."

Source: (Field Survey, 2023)

The most frequently mentioned reform is raising the retirement age, reflecting concerns about the system's long-term financial sustainability, particularly in light of the increasing number of retirees and potential strain on existing resources. Additionally, expanding coverage to the informal sector, encompassing a large portion of the workforce, is considered crucial for ensuring inclusivity and wider social protection. This data provides valuable insights into public opinion on reforming Nepal's pension system. It highlights the need for a multifaceted approach addressing various aspects, including extending the working life, expanding coverage, and ensuring financial stability.

Findings and Discussion

The analysis of Nepal's pension system sheds light on its current state and the imperative need for reforms. The escalating number of pension beneficiaries, particularly within the civil service sector, underscores the mounting financial strain on the government. This aligns with findings from studies in other countries, such as India and Bangladesh, which also face challenges posed by an aging population and increasing pension liabilities (Chalise et al., 2022; Mahmud & Rahman, 2020). The disparity in retirement ages between civil servants and teachers further complicates the management of pension liabilities, echoing similar concerns raised in pension systems worldwide (Sergey, 2019). Furthermore, the rise in annual pension expenditure highlights the pressing need for immediate action to ensure the long-term financial sustainability of Nepal's pension system. Similar trends have been observed in other countries undergoing demographic transitions, emphasizing the urgency of implementing effective reform measures to address rising pension costs (Ortiz et al., 2018; Bonenkamp et al., 2017). The dissatisfaction among respondents regarding the adequacy and effectiveness of pension benefits echoes findings from studies in various contexts, indicating widespread concerns about pension provision and its ability to meet retirees' financial needs (Hinrichs, 2016; Vogel et al., 2017).

The survey on the perceived impact of pension system reforms reveals a mixed public perception, with some expressing positive expectations while others hold neutral or negative views. This finding aligns with studies from other countries, which also report divergent opinions among the populace regarding the potential outcomes of pension reforms (Buyse et al., 2017; Porte & Natali, 2017). The age-related difference in perspectives highlights the importance of considering demographic factors in pension reform efforts, as observed in studies examining public attitudes towards retirement and pension systems (Ebbinghaus, 2015; Han & Jeong, 2020). Insights from the open-ended question on factors contributing to pension system reforms corroborate findings from international literature, emphasizing the importance of raising the retirement age, expanding coverage to the informal sector, increasing contribution rates, improving efficiency and management, and enhancing public awareness. These reform priorities align with recommendations from studies on pension reform strategies, emphasizing the need for multifaceted approaches to address the complex challenges facing pension systems globally.

Hence, the findings of this study highlight the urgent need for comprehensive reforms to address the systemic challenges and shortcomings in Nepal's pension system. By drawing lessons from international best practices and considering the diverse needs and concerns of different age cohorts, policymakers can develop effective reform strategies to ensure the long-term sustainability and adequacy of Nepal's pension system, thereby safeguarding the financial security and well-being of retirees.

Implications

The analysis of Nepal's pension system unveils significant implications for both theoretical understanding and practical action. Theoretical implications emphasize the importance of cross-country comparisons, highlighting parallels with pension systems in countries like India and Bangladesh. This comparative analysis offers insights into common challenges and drives theoretical exploration, advancing frameworks in pension studies. Additionally, demographic considerations highlight the role of age-related differences in shaping attitudes towards reforms, urging the integration of demographic variables into theoretical models for a nuanced understanding of pension dynamics. The emphasis on multifaceted reform approaches further address the complexity of addressing pension challenges, urging researchers to develop models that capture the interconnectedness of reform measures.

On a practical level, the study emphasizes the urgency of comprehensive reforms to address Nepal's pension system's systemic challenges. Policymakers can utilize insights from international best practices to inform tailored reform initiatives, considering diverse stakeholder needs. Stakeholder engagement and public awareness emerge as crucial drivers of reform success, urging policymakers to foster collaboration and educate the public on the benefits of pension reforms. Furthermore, capacity building and institutional strengthening are highlighted as essential for the effective implementation of reforms, necessitating investments in training programs and institutional mechanisms. By incorporating these implications into policy design and implementation, policymakers can work towards ensuring the long-term sustainability and adequacy of Nepal's pension system, ultimately safeguarding retirees' financial security and well-being.

Conclusion and Recommendations

Pension reform has emerged as a critical issue worldwide, spurred by demographic shifts, economic challenges, and the COVID-19 pandemic's economic fallout. The ageing population and declining birth rates have strained pension systems, leading to escalating costs and jeopardizing their sustainability. The urgency for reform is emphasized by the pandemic's impact on pension fund performance, deepening the financial strain on governments and threatening retirees' financial security. Nepal's pension system also grapples with numerous challenges, including low coverage, inadequate benefits, and financial instability. While this study sheds light on some aspects of the system, it acknowledges limitations in its scope. Nonetheless, it advocates for urgent reforms, suggesting a transition from noncontributory to contributory pension schemes as a potential solution. Such reforms could entail expanding coverage to include informal sector workers and adopting measures to ensure the system's long-term financial viability.

To address these challenges effectively, several potential solutions have been proposed. Firstly, increasing coverage to encompass a broader spectrum of workers, including those in the informal sector and agriculture, can enhance the system's inclusivity and effectiveness. Secondly, ensuring financial sustainability by introducing contributory schemes, wherein both employees and employers contribute during their working years, could alleviate the strain on government finances. Lastly, integrating the pension system with other social protection programs could strengthen social safety nets, providing retirees with access to essential services and improving their overall welfare. However, implementing these reforms necessitates sustained political commitment, institutional reforms, and adequate financial resources. Without such support, the potential benefits of reform may remain unrealized, leaving retirees vulnerable to financial insecurity. Therefore, policymakers must prioritize pension reform efforts, recognizing them as integral to ensuring the well-being of retirees and the long-term stability of Nepal's pension system.

The conclusion highlights the urgent need for pension reform in Nepal due to demographic changes, economic challenges, and the impact of the COVID-19 pandemic. It emphasizes the importance of forward-looking initiatives taken by insurance stakeholders, including regulators, bodies, and players, to fill the current gap in the pension system. These initiatives include promoting innovative pension solutions, offering tailored pension products, and conducting awareness campaigns to enhance public understanding of retirement planning. Regulatory bodies, such as the Insurance Board of Nepal, have been actively involved in promoting innovative pension solutions and ensuring compliance with regulatory standards. They have introduced measures to encourage the development of pension products and enhance consumer protection. Through regulatory oversight and guidance, these bodies strive to foster a conducive environment for sustainable pension provision. The importance of continued collaboration between insurance stakeholders, government agencies, and policymakers to create an enabling environment for sustainable pension provision. Overall, the conclusion reflects optimism about the future trajectory of pension provision in Nepal, driven by proactive efforts and collaborative initiatives across sectors.

Limitations and Area for Further Study

This study offers crucial insights into the pressing need for comprehensive reforms to tackle systemic challenges. However, it's essential to acknowledge the study's limitations and propose avenues for further research. One such limitation is the study's exclusive focus on the pension system, overlooking other components of social security benefits that may influence individuals' motivation. Consequently, future research could investigate the interconnectedness of various social security benefits and their combined impact on employee motivation and well-being. Furthermore, the study's utilization of a descriptive research design restricts its capacity to establish causal relationships or explore explanatory factors. To address this limitation, future research could adopt explanatory or causal-comparative studies to explore deeper into the underlying mechanisms driving outcomes of pension reform. Additionally, qualitative approaches, such as stakeholder interviews, could offer deeper insights into the perspectives and experiences of pension beneficiaries, policymakers, and other key stakeholders involved in the reform process.

Moreover, the study proposes several potential solutions for pension reform in Nepal, including broadening coverage, ensuring financial sustainability through contributory schemes, and integrating the pension system with other social protection programs. However, the feasibility and effectiveness of these solutions require further investigation. Subsequent research could evaluate the implementation of these reform measures in different contexts or conduct pilot studies to assess their impact on retirees' financial security and well-being. Likewise, while this study sheds light on the challenges and possible solutions concerning pension reform in Nepal, additional research is imperative to deepen our comprehension and guide evidence-based policy decisions.

Funding sources: Self-funded

Conflict of Interest: No conflict of interest

Ethical statement : This research did not require ethical approval as it does not involve any human or animal experiments.

Acknowledgements: The author would like to thank the respondents, editor and all the reviewers for their constructive inputs. I want to extend my thanks to all who supported me a lot at the time of writing this article.

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Role of Employees Provident Fund (EPF) in Nepal's Social Security

2023-10-05T20:33:00.003+06:00

This article published in KOSH Patrika 2080

Role of Employees Provident Fund (EPF) in Nepal's Social Security

Dilip Raj Paudel, PhD Research Scholar

Introduction

Employees Provident Fund (EPF) in Nepal serves as a critical pillar within the nation's social security infrastructure. The EPF's primary objective is to provide contributors with a sense of economic security during retirement, ensuring their financial well-being beyond their active working years. This article seeks to explore the multifaceted role of the EPF within Nepal's social security ecosystem and to elucidate the range of services it offers to its contributors.

Employees Provident Fund (EPF) stands as a cornerstone of Nepal's social security framework, offering a structured mechanism for employees to save for their retirement years. Established with the aim of ensuring financial security and stability during the post-employment phase, the EPF caters to both the private and public sector workforce. As a contributory pension scheme, it operates under the guiding principle of fostering long-term financial well-being for contributors

Social security stands as a fundamental pillar of a nation's commitment to ensuring the well-being of its citizens. Employees Provident Fund (EPF) in Nepal plays a pivotal role within the framework of social security by providing a reliable mechanism for building financial security for individuals during their working years and post-retirement phase. This article seeks to explore the correlation between social security and the EPF, elucidating how the fund contributes to the overall social safety net.

The pension system plays a crucial role in ensuring the financial security and wellbeing of individuals during their postretirement years. In Nepal, the pension system has undergone significant changes over the years, reflecting the nation's socioeconomic transformations. This article delves into the nuances of Nepal's pension system, analyzing its historical development, the legislative foundation, and the challenges that necessitate consideration for its enhancement.

The pension system stands as a cornerstone of social welfare, offering a safety net to individuals during their retirement years. In the context of Nepal, the pension landscape has witnessed a series of transformations in response to changing socioeconomic dynamics. The evolution of the pension system reflects not only the nation's commitment to ensuring the wellbeing of its aging population but also its capacity to adapt to shifting demographics and economic challenges.

Understanding Social Security

Social security encompasses a range of policies and programs designed to mitigate economic risks and enhance the quality of life for individuals and families. It addresses various dimensions of wellbeing, including retirement, disability, survivor benefits, and healthcare. The EPF in Nepal aligns with these principles by offering a structured savings mechanism that addresses retirement income needs.

Social Security refers to a governmentsponsored program designed to provide financial support and assistance to individuals or families in need, particularly during certain life events or circumstances that may lead to a loss of income or financial stability. The primary goal of social security programs is to reduce poverty, promote economic stability, and ensure a basic standard of living for citizens. Key components and concepts of social security include:

1. Retirement Benefits: Many social security programs include provisions for providing financial support to individuals after they retire from the workforce. These benefits are intended to replace a portion of the individual's pre-retirement income and ensure a dignified life during their retirement years.

2. Disability Benefits: Social security systems often provide benefits to individuals who become disabled and are unable to work. These benefits help individuals and their families cope with the financial challenges that can arise from a loss of income due to disability.

3. Survivor Benefits: In the event of a worker's death, social security programs may offer benefits to surviving family members, such as a spouse, children, or dependent parents. These benefits help support the family financially after the loss of the primary earner.

4. Unemployment Benefits: Social security systems can provide temporary financial assistance to individuals who lose their jobs involuntarily. Unemployment benefits help individuals maintain a minimum standard of living while they search for new employment opportunities.

5. Healthcare Benefits: Some social security programs include provisions for healthcare coverage, ensuring that individuals have access to necessary medical services. This can include coverage for medical treatments, hospitalization, and prescription medications.

6. Maternity and Family Benefits: Social security systems may provide benefits to new parents to help cover the costs associated with childbirth, adoption, or raising children. These benefits can alleviate financial strain during these life stages.

7. Poverty Alleviation: Social security programs play a crucial role in reducing poverty and income inequality within a society. By providing financial assistance to vulnerable populations, these programs aim to ensure that all citizens have access to a certain level of economic well-being.

8. Contributory and Non-Contributory Systems: Social security programs can be funded through various methods. In contributory systems, both employees and employers make regular contributions to a fund, which is then used to provide benefits. Non-contributory systems, on the other hand, are funded entirely by the government and provide benefits to eligible individuals without requiring contributions.

9. Government Regulation: Social security programs are typically governed by laws and regulations that define eligibility criteria, benefit amounts, funding mechanisms, and other important aspects of the program.

It's important to note that the specific details of social security programs can vary widely from one country to another. Each country's social security system is shaped by its economic, cultural, and social factors. Additionally, social security programs can evolve over time to adapt to changing demographics and societal needs.

Employees Provident Fund (EPF)

Employees Provident Fund (EPF) in Nepal is a social security program designed to provide financial security and retirement benefits to employees working in various sectors. It is a contributory fund where both the employer and the employee make regular contributions. The EPF scheme aims to ensure that employees have a stable source of income after retirement, as well as during certain other life events such as disability or death. It also serves as a savings mechanism for employees to accumulate a corpus over the years of their active service.

Employees Provident Fund - EPF was established under Employees Provident Fund Act, 2019. EPF manages Provident Fund (PF) in Nepal on behalf of the Government of Nepal (GON) for government, public enterprises and private sector employees. It has been entrusted to manage Contributory Pension Scheme for the employees of Federal GON and other public sector employees appointed from Fiscal Year 2076/77 as per the Pension Fund Act, 2075. Its relationship with GON is routed through Ministry of Finance.

According to Income Tax Act, 2058, EPF is an approved retirement fund that allows annual income deduction benefit on contribution by member to his/her PF and Pension Fund account and special tax benefit privilege at the time ofrepayment of PF after retirement. EPF also provides some social security benefits to the contributors, viz medical treatment reimbursement, Accident Indemnity Claim, maternity and child care benefit, funeral grant etc.

Objectives of Employees Provident Fund

The primary objectives of the Employees Provident Fund encompass safeguarding the economic interests of employees and contributing to broader social security goals. The EPF seeks to:

l. Ensure Retirement Income: The EPF's foremost objective is to create a corpus of savings for employees that can be accessed upon retirement. This ensures a steady stream of income during a contributor's non-working years, reducing the risk of financial instability.

2. Mitigate Economic Risk: By encouraging regular contributions throughout an employee's active years, the EPF mitigates the economic risk of inadequate income during retirement. It strives to enhance the overall quality of life for retirees.

3. Provide for Unforeseen Events: Beyond retirement benefits, the EPF also offers provisions for disability and survivor benefits. These components provide a safety net for contributors and their families in case of unexpected circumstances.

Functions of Employees Provident Fund

Employees Provident Fund operates through a set of key functions that facilitate its role in contributing to contributors' financial well-being:

1. Manages Mandatory Contributions: Both employees and employers are mandated to contribute a portion of the employee's salary to the EPF. These contributions accumulate over time, creating a sizeable fund that forms the basis for retirement benefits.

2. Accumulation of Savings: The EPF acts as a custodian of the accumulated savings, managing the fund's investments to generate returns. This accumulation of savings ensures a source of income during retirement.

3. Retirement Benefits: Upon reaching the prescribed age of retirement, contributors are entitled to withdraw a lump sum from the EPF, providing them with a financial cushion to sustain their post-employment years.

4. Disability and Survivor Benefits: The EPF extends support in cases of disability or demise, offering a portion of the accumulated savings to individuals or their surviving family members, thus addressing unforeseen life events.

Services Offered by the EPF to Contributors

The EPF extends a spectrum of services aimed at bolstering the financial security of its contributors. These services encompass not only retirement benefits but also provisions for unforeseen circumstances. One of the key services provided is the lump-sum withdrawal of accumulated savings upon reaching the age of retirement, as prescribed by the EPF regulations. This lump-sum payment assists retirees in maintaining their standard of living and meeting essential expenses.

Moreover, the EPF introduces an additional layer of security by offering disability and survivor benefits. In the unfortunate event of a contributor's disability or demise, the fund ensures that the individual or their surviving family members receive a portion of the accumulated savings. This safety net underscores the EPF's commitment to fostering comprehensive social security coverage. Employees Provident Fund (EPF) in Nepal offers a range of services and facilities to its contributors, aiming to enhance their financial security, well-being, and quality of life both during their active working years and in retirement. These services encompass various dimensions of social security, encompassing retirement benefits, withdrawal provisions, and responsive assistance during times of need.

l . Retirement Benefits:At the core of its offerings, the EPF provides contributors with a dependable retirement benefit. Upon reaching the prescribed age of retirement, contributors can access a lump-sum payment comprising their accumulated savings, including their own contributions and those made by their employers. This retirement benefit acts as a financial cushion, ensuring a steady income stream during their non-working years.

2. Loan for Specific Needs: Recognizing the diverse financial needs of contributors, the EPF offers provisions for Loan facilities under certain circumstances. Contributors can access a portion of their accumulated savings for purposes such as education, health emergencies, home construction, and marriage. These facilities will help alleviate immediate financial burdens and enhance the overall well-being of contributors.

3. Disability Benefits: In the unfortunate event of contributors becoming permanently disabled, the EPF extends disability benefits. The fund provides financial support to individuals who are unable to continue working due to their disabilities. This assistance helps maintain a certain level of financial stability during challenging times and ensures that contributors and their families are not left without means of support.

4. Member Portal and Online Services : To enhance accessibility and convenience, the EPF offers an online member portal where contributors can access information about their accounts, contributions, and benefits. This digital platform empowers contributors to track their savings, submit withdrawal requests, and receive updates about their accounts, streamlining the interaction between contributors and the fund.

5. Transparent and Accountable Operations: The EPF prioritizes transparency and accountability in its operations. Contributors receive regular updates about their contributions and balances, allowing them to monitor the growth of their savings. This transparency builds trust and confidence in the fund's management and reinforces its commitment to serving the best interests of its contributors.

In sum, the EPF's services and facilities to its contributors extend far beyond traditional pension offerings. By providing avenues for partial withdrawals, disability benefits, survivor benefits, and online access, the EPF caters to a comprehensive range of contributors' needs. These services not only bolster individual financial security but also exemplify the EPF's integral role in Nepal's social security architecture.

Role of Employees Provident Fund in Social Security

The EPF plays a crucial role in safeguarding the economic interests of Nepal's workforce. It acts as a mandatory savings scheme for employees in both public and private sectors, requiring employers to contribute a portion of employees' salaries to the fund. These contributions are designed to accumulate over an individual's working life, creating a substantial surplus that can be accessed upon retirement. This fundamental aspect of the EPF ensures a steady stream of income for contributors during their postretirement phase.

The EPF's role in Nepal's social security landscape is paramount. As a contributory pension scheme, it aligns with broader social security objectives by ensuring financial security and stability for employees. By mandating regular contributions and facilitating the accumulation of savings, the EPF reduces the burden on the state's welfare system and fosters individual responsibility for retirement planning. The EPF contributes to social cohesion by promoting a culture of savings and providing a safety net for contributors and their families during times of need. It addresses vulnerabilities associated with old age, disability, and survivorship, thereby enhancing the overall quality of life and well-being of the workforce.

The EPF serves as a crucial vehicle for social security enhancement in Nepal. The fund operates on a mandatory contribution basis, requiring both employees and employers to contribute a portion of the employee's salary. These contributions accumulate over time, creating a surplus that ensures financial security in retirement. This system aligns with the broader goals of social security by mitigating the risk of inadequate income during retirement years. The EPF extends its coverage beyond retirement. The fund provides disability benefits to contributors who experience incapacitation due to unforeseen circumstances. Additionally, in the unfortunate event of a contributor's demise, the EPF extends survivor benefits to the family, aiding in maintaining financial stability during times of crisis.

Employees Provident Fund (EPF) plays a pivotal role within Nepal's broader social security framework, contributing to the well-being and financial stability of employees throughout their lifecycle. Its multifaceted functions and contributions align with the principles of social security, addressing a spectrum of economic risks and promoting social cohesion. Major role played by EPF can be highlighted as follows:

1. Retirement Security

One of the primary ways in which the EPF enhances social security is by ensuring retirement security for contributors. The mandatory contributions from both employees and employers create a substantial corpus over time. This corpus becomes a dependable source of income for retirees, reducing the vulnerability of elderly individuals to poverty and financial uncertainty.

2. Financial Inclusion

By extending coverage to both the public and private sector, the EPF fosters financial inclusion. It provides a structured mechanism for employees from diverse backgrounds to save and invest in their futures. This inclusivity supports broader social and economic development by promoting responsible financial planning among individuals who might otherwise lack access to formal retirement savings options.

3. Reduction of Reliance on Welfare Systems

The EPF serves as a complementary mechanism to the government's social welfare programs. By encouraging employees to accumulate savings during their working years, the EPF lessens the burden on state resources. This reduction in reliance on public welfare systems allows governments to allocate resources more efficiently, directing them towards other critical social services.

4. Economic Stability and Family Support

The EPF's provision of disability and survivor benefits enhances social security by contributing to economic stability and family support. In the event of unforeseen circumstances such as disability or death, the EPF offers financial assistance to the affected individual or their family. This support cushions the financial impact of such events and prevents families from falling into destitution.

5. Empowerment and Dignity

Social security systems are not solely about financial support; they also contribute to individuals' sense of empowerment and dignity. The EPF empowers contributors by enabling them to take control of their financial futures, instilling a sense of responsibility and self-sufficiency. This empowerment extends to their families as well, fostering a collective sense of security and pride.

6. Long-Term Social Cohesion

The EPF contributes to the fabric of social cohesion by promoting a culture of savings and financial responsibility. It engenders a shared understanding of the importance of planning for retirement and navigating life's uncertainties. This shared responsibility fosters a sense of community and intergenerational support, ultimately strengthening the social bonds within society.

7. Management of Contributory Pension scheme

The current pension landscape in Nepal is underpinned by a set of legislative frameworks and institutional arrangements. Non-contributory pension scheme managed by Pension Management Offce (PMO) for government employees. Contributory pension scheme for government and public sectors employees has been managed by Employees Provident Fund (EPF). EPF is playing an important role by managing this scheme as it is a vital pillar of social security.

In essence, the EPF's role in Nepal's social security landscape extends beyond providing mere financial benefits. It actively promotes the holistic well-being of individuals, families, and society at large. By addressing the challenges associated with retirement, disability, and survivorship, the EPF exemplifies the ideals of social security, enhancing economic stability and human dignity for the Nepalese workforce.

Conclusion

Employees Provident Fund (EPF) in Nepal plays a vital role in enhancing the country's social security framework. By providing a structured savings mechanism that addresses retirement, disability, and survivor needs, the EPF aligns with the core principles of social security. Nepal's pension system occupies a pivotal role in ensuring the financial well-being of retirees.

Employees Provident Fund (EPF) in Nepal serves as a linchpin in the country's social security structure, diligently contributing to the financial well-being of its contributors. Through mandatory savings and a range of services catering to retirement, disability, and survivor benefits, the EPF exemplifies its dedication to securing the futures of Nepal's workforce.

Reference:

Employees Provident Fund Act, 2019

Social Security Act

Contributory Pension Act

www.epf.org.np

www.ssf.gov.np

Social Security & Insurance

2022-11-23T18:50:00.008+06:00

Social Security & Insurance

Dilip Raj Paudel

Social security/social protection provides individuals with a degree of income security when faced with the contingencies of old age, survivorship, incapacity, disability, unemployment or rearing children. It may also offer access to curative or preventive medical care. It also provides valuable social insurance protection to workers who become disabled and to families whose breadwinner dies.

Insurance is a contract in which an insurer indemnifies another against losses from specific contingencies or perils. It helps to protect the insured person or their family against financial loss. Life, health, homeowners, and auto are the most common forms of insurance. Insurance is a financial safety net, helping you and your loved ones recover after something bad happens.

social security & Insurance is related each other. We know insurance covers the risk and protect via the financial for the peoples life depends upon the policy of insurance. Similarly Social security schemes managed through the insurance.

Social security is the protection that a society provides to individuals and households to ensure access to health care and to guarantee income security, particularly in cases of old age, unemployment, sickness, invalidity, work injury, maternity or loss of a breadwinner. Social Security provides a foundation of income on which workers can build to plan for their retirement. It also provides valuable social insurance protection to workers who become disabled and to families whose breadwinner dies

Insurance is a contract in which an insurer indemnifies another against losses from specific contingencies or perils. It helps to protect the insured person or their family against financial loss. There are many types of insurance policies. Life, health, homeowners, and auto are the most common forms of insurance. We begin with an overview of the types of insurance, from both a consumer and a business perspective. Then we examine in greater detail the three most important types of insurance: property, liability, and life. Insurance is a financial safety net, helping you and your loved ones recover after something bad happens — such as a fire, theft, lawsuit or car accident. When you purchase insurance, you'll receive an insurance policy, which is a legal contract between you and your insurance provider.

So we can say social security & Insurance is related each other. We know insurance covers the risk and protect via the financial for the peoples life depends upon the policy of insurance. Similarly Social security schemes managed through the insurance.

What is social security?

Social security may be defined as any programme of social protection established by legislation, or any other mandatory arrangement, that provides individuals with a degree of income security when faced with the contingencies of old age, survivorship, incapacity, disability, unemployment or rearing children. It may also offer access to curative or preventive medical care.

International Social Security Association (ISSA), defined as the social security can include social insurance programmes, social assistance programmes, universal programmes, mutual benefit schemes, national provident funds, and other arrangements including market-oriented approaches that, in accordance with national law or practice, form part of a country's social security system.

The International Labour Organisation (ILO) uses three criteria to define a social security system. First, the objective of the system must be to grant curative or preventive medical care, to maintain income in case of involuntary loss of earnings or of an important part of earnings, or to grant a supplementary income to persons having family responsibilities. Second, the system must have been set up by legislation that attributes specified individual rights to, or that imposes specified obligations on, a public, semipublic, or autonomous body. And third, the system should be administered by a public, semipublic, or autonomous body. The ILO includes provisions according to which the liability for the compensation of employment injuries is imposed directly on the employer, although such schemes do not strictly meet the third criterion above. For this reason employer liability is included here.

Its fundamental purpose is to give individuals and families the confidence that their level of living and quality of life will not, insofar as is possible, be greatly eroded by any social or economic eventuality. This involves not just meeting needs as they arise but also preventing risks from arising in the first place, and helping individuals and families to make the best possible adjustment when faced with disabilities and disadvantages which have not been or could not be prevented. . . . It is the guarantee of security that matters most of all, rather than the particular mechanisms such as contributory or tax financing, the insurance or service model of delivery, or the ownership of facilities (public/private, profit/non-profit) by which that guarantee is given. . . . The means should not be confused with the ends. (https://www.britannica.com/topic/social-security-government-program)

Social Security is a universal right:

The first social security programmes based on compulsory insurance were established in Europe in the late-19th century. It was during the 20th century, however, that national social security programmes developed more widely around the globe, not least as a result of decolonization and the institution of new independent states after World War Two. The development of social security has also been supported by various international conventions and instruments, and the recognition of social security as a basic human right was enshrined in the 1948 Universal Declaration of Human Rights. In a few countries, for example Germany and Brazil, social security is a right guaranteed by the Constitution.

Similarly it is also guaranteed by Nepalese constitution as well. The Constitution of Nepal 1992 had recognized social security as a state responsibility and the Interim Constitution of Nepal 2006 has ensured social security as a fundamental right of the people. Article 38 (1) directs the State to promote the welfare of the people by securing and protecting as efficiently as it may a social order in which justice –social, economic and political shall inform all institutions of national life. Today, most countries have some type of social security system. Worldwide, the most common type of programme is for old-age, disability, and survivors' pensions, followed by programmes for benefits for work injuries and occupational diseases, sickness and maternity, family allowances and unemployment.

However, its coverage is very low or limited access. According to available estimates, around 50 per cent of the global population has access to some form of social security, while only 20 per cent enjoy adequate social security coverage. So, need to extend coverage is therefore a key challenge for social security organizations in all over the world. It is not so easy due to the financial constraints, however this can only be done while also addressing wider policy issues, including the demographic ageing of populations, evolving family structures, the impacts of economic globalization, the growth of informal labour markets, and epidemiological and environmental developments. (https://ww1.issa.int/about/socialsecurity)

In the social security policy system, social insurance is the main pillar, which’s functions are minimizing risks, support to people in compensating or partially replacing for their income when they have to face the risks (illness, losing job or working capacity), reducing pressure on the social assistance system. Thus, increasing the social insurance coverage is the measure for countries to strengthen their competitiveness in the global market. All countries are trying to find solutions to facilitate their citizens in accessing and participating in social insurance.

Therefore, social insurance coverage means effectiveness of the social insurance policy and program implementation; ensuring people’s participation, strengthen social security protection (benefit level).

Social insurance

social insurance, public insurance program that provides protection against various economic risks (e.g., loss of income due to sickness, old age, or unemployment) and in which participation is compulsory.

The objective of insurance is to financially guard against unpredictable life occurrences. In short, when you buy an insurance policy, you make monthly payments, called premiums, to purchase protection from monetary repercussions related to things like accidents, illness or even death.

Social insurance is based on the recognition that economic insecurity in a money economy arises in considerable part from interruptions to income from work caused by unemployment, retirement in old age, death of the family breadwinner, or disability, either short-term or long-term. The contribution of social insurance to economic security is principally to provide a partial replacement of work income during the time when a person is out of work for any of these specified causes. It is thus "income insurance"-replacing a part of one's work income when it is interrupted just as other forms of insurance replace, when it is lost, part or all of the value of the thing insured. In many countries, it is also common for social insurance to be applied to the risk of having to face certain extraordinary expenses such as those connected with the birth of a child or with illness.

It is, of course, recognized that social insurance does not deal with all the situations in which economic insecurity may occur. For example, income insurance is of little help where insecurity is the result of low wages, with large numbers of children to be supported by such wages. Income insurance can hardly deal with the problems of poverty for children and their mothers that grow out of illegitimacy, desertion, and divorce.

According to ILO, social insurance coverage has two dimensions; those are breadth and depth coverages.

a) The breadth social insurance coverage is measured by three basic criteria: potential

coverage, statutory coverage (policy) and the actual coverage, in which:

- Potential coverage reflexes the level of policy development and people’s social insurance rights, which is measured by the percentage of population participating in labour force (people with social insurance demand) in the total of working age population.

- Statutory coverage reflexes the level of people’s satisfaction to the social insurance policies, which is measured by the percentage of the population covered under social insurance policies in the total of working age population or population participating in labour force.

- Actual coverage reflexes the level of the effectiveness of social insurance policy implementation, which is measured by the percentage of social insurance insured population in the total of working age population under social insurance policies (or labour force).

b) The depth social insurance coverage reflexes the level of the sustainability of social security policies, which is measured by numbers of basic indicators such as: percentage of the insured social insurance population in the total population participating in social insurance policy; The gap between average pension and statutory minimum wage; percentage of social insurance expenditure per social insurance revenue, etc.

The principle of social insurance coverage extension

- Firstly, universal: social security policy should aim to cover the entire working age population in order to ensure welfare right for all employees.

- Secondly, justice: social insurance policies has to ensure that all groups can participate and get equal benefit.

- Thirdly, publicity and transparence: social insurance policies has to ensure the publicity and transparence of its policies, regulations, rights and responsibilities of entities regulated by the policy.

- Fourthly, financial sustainability: social insurance development has to ensure the sustainability of the social insurance fund.

- Fifthly, the role of the Government: ensuring all citizens can participate in the social insurance system. There should be appropriate solutions for each specific target groups.

Relation between the social security & Insurance:

What's the difference between social security and social insurance? Social insurance is an institution jointly operated by industrialists, workers and Government. Social Insurance benefits are allowed to tall injured persons irrespective of their status, economic need whereas the benefit of social security is allowed strictly on the basis of needs and requirements.

What is the role of insurance in social security? In the social security policy system, social insurance is the main pillar, which's functions are minimizing risks, support to people in compensating or partially replacing for their income when they have to face the risks (illness, losing job or working capacity), reducing pressure on the social assistance system

What is the role of insurance in economic development and social security? Insurance turn accumulated capital into productive investments. Insurance also enables mitigation of losses, financial stability and promotes trade and commerce activities those results into sustainable economic growth and development. Thus, insurance plays a crucial role in the sustainable growth of an economy.

Reference :

https://www.omicsonline.org/open-access/social-security-and-social-insurance-2169-0170-1000206.php?aid=80572

https://heinonline.org/HOL/LandingPage?handle=hein.journals/intlr142&div=26&id=&page=

https://books.google.com.np/books?hl=en&lr=&id=tqqImB4_RxkC&oi=fnd&pg=PR11&dq=Relation+between+the+social+security+%26+Insurance&ots=E_MIpO_IoC&sig=YpSNaHqA-gu7_2ez8TR5pJ8wOHs&redir_esc=y#v=onepage&q=Relation%20between%20the%20social%20security%20%26%20Insurance&f=false

https://www.imf.org/external/pubs/ft/wp/wp97113.pdf

Reforming Pension System in Nepal

2022-11-23T18:43:00.003+06:00

Reforming Pension system in Nepal

Context for Pension Policy & Management

Since 1883 AD, Pension System was started in Germany and in USA from 1935. In Nepalese context, not so long history, pension scheme was introduced in 1st September 1941 AD for Nepalese Army. Thereafter, It has started since November 29, 2042 AD. Similarly Government of Nepal has started old age (75+ aged people, now 70+ aged people eligible for allowances) allowance in 1994 AD. So we can say there are 4 types of pension system in Nepal.

Employee Pension: Fully Funded, Non Contributory pension system for all government employees (Civil servants, Nepalese Army, Nepal Police, Armed Police Force, Government Teachers and other government employee and some government financial institution. Those employees who has appointed before July 15 1919. In these schemes, those employees who completed 20 years permanent service then eligible for pension however they have another option and work till aged 58, so all employees prefer to work their age till 58. Amount of pension is not less than 50% and not over than 100% of current salary of same post's
Contributory Pension: Contributory Pension System for Government Employees who are appointed from 16th July 2019 AD. In this schemes Employee contribute 6% and 6% contributed by Employer (Government/Government Agency). This scheme managed by Employees Provident Fund. After the 20 years' service then eligible for pension.
Contributory Social Security: Contributory Social Security Scheme has started in 16th July 2019 AD for Private Sector employee. In this scheme 10% contribute by employee & 20% contribute by Employer. This scheme covers Pension/Gratuity, Medical benefits. In this scheme after 15 years contribution then eligible for pension.
Universal Pension: Universal Pension schemes covers elderly people aged 70+ are eligible for such allowances Rs. 4000 NPR/month. Social Pension (Non Contributory, Cash transfer-financing by annual government budget for all old age people aged 70+, all aged widow, single women aged 60+, karnali zone aged 60+, Indenigious aged 60+, Dalit citizens 60+) – managed by local government. In Nepal around 73% old age people above 60 years will get social pension (NRs. 2660-4000/month). Female 84% and Male 64% are eligible and getting benefit. Challenging issues–Coverage, Adequacy & Sustainability

Total population of Nepal is around 30 million. As our labor survey 53.5 % were females out of 29 million population of Nepal in 2017/18. As a demographical & geographical perspective majority of the population 63% (18.3 million) are in urban areas and 37% (10.7 million) are in rural area. In labor market, working age population aged 15+ years are 71.5 % (20.7 million) of the total population. Out of them 55.6% are females. Unemployment rate is 11.4%. Female's unemployment rate is 13.1%.

In Nepal pension amount and retirement age is same for male and female. We can say women are in priority than man for social security scheme like all widows aged 60+ will eligible for allowances but such type of widow(man) allowances has not for man. We can reform to promote greater gender equality in old age income security by expanding or creating non-contributory social pension as widows are getting now monthly social pensions, ensure that the benefit level for women is adequate, compensate for time of child care and unpaid leave etc.

Assessment of performance

Coverage

The Government of Nepal has been practicing a non-contributory pension scheme for a long time, in which the entire pension and gratuity obligation is covered by annual government budget allocations. Government employee (Civil Servants, Nepal Police, Armed Police Force, Nepalese Army), government Teachers and other government employee are getting pension after retirement. Government of Nepal has started a Contributory pension scheme through Employees Provident Fund (EPF) for Government employee who has appointed after 2019 July. Since 2019 GoN has started contributory social security system through the Social Security Fund (SSF) for private sector employee. Here all employee either government or private sector will be covered. Beneficiaries are very low percentage out of total population.

Large population is covered in the Social Pension (Old age Allowances) scheme but not total populations are covered. All Nepalese citizens aged 70 years are eligible for old age allowances NRs.4000/monthly. Single women and Widows are also eligible this allowances. In this regard we can say its coverage is very good. Amount is very small however it is the source of income for all old aged people. But its sufficiency and sustainability is questionable.

In my thinking, both contributory and non-contributory scheme is appropriate. The persons who have income / source of income and capable to contribute should contribute for contributory social security/social protection scheme for their secure future.

Nepal has around 30 million populations. Social pension scheme covered all the old age people above 70 years along with widow and deprived (Nationally Defined) people except government pension holder. This is the non-contributory tax financed horizontal scheme. Around 73% of the elder populations are covered in this scheme where female are around 82% and male are only 64%. Only 4% of the labor force is contributing in the contributory scheme which was started since 2019 July 16 by Social Security fund of Nepal in 2019 A.D. In Nepal very few people are able to join a contributory scheme which has been recently started in 2019 A.D. for the formal sector employee. It is in the beginning so contributing group is only about 10% of the Population over the pension age. Challenging issues is sustainability and adequacy for its coverage age and their old age income security

Adequacy

Adequacy of pension system is very challenging issues in Nepal. There are around 30 million populations. A social security scheme has started in 1995/1996 A.D. as old allowances for older people age 70+. Such a old age allowances called as universal pension or Social pension scheme in Nepal. This scheme covers the elder (Above 70 yrs.), widow and deprived (Nationally Defined) people except government pension holder. This is the non-contributory horizontal scheme.

In Nepal still having a non-contributory pension scheme for Government employee and social pension for 70+ elder people. Government of Nepal just started the contributory employee pension for Government employee and Contributory Social Security System (Including Pension) for Private sector employee. So, very few people are supposed to get a contributory scheme which has been started since 2019 A.D. The coverage is only 10% of the Population over the pension age. The scheme that allows to achieve consumption smoothing as well as income replacement. Those workers working in the informal sectors have lowest access.

Minimum pension amount of non-contributory for government employee will be able to get at least 50% of basic salary of that post in which he retired. Calculation formula is (No. of service year X last take home salary)/40 & 50 as their job sector

As on date average minimum pension is equal to NRs. 10,740 which is more than the poverty line i.e. NRs 1,605. In this regard, in terms of poverty line we can say the pension amount is adequate. Pension benefits are providing relatively an adequate level of income as comparison to the poverty line of Nepal. But in terms of their living standard, maintaining daily expenses in old age it will be not as adequate.

Lump sum benefits are also providing the income security in Nepal through Employees Provident Fund and Citizen Investment Trust’s schemes. We do not have depth research on the adequacy and income security received from the lump sum benefits.

Minimum Social pension amount is Rs. 2660/month and maximum Rs. 4000/month. Here, social pension amount is more than the poverty line i.e. NRs 1,605. In this regard, in terms of poverty line we can say the social pension amount is adequate. Pension benefits are providing relatively an adequate level of income as comparison to the poverty line of Nepal. But in terms of their living standard, maintaining daily expenses in old age is not sufficient or adequate. However Pension benefits are providing relatively an adequate level of income as comparison to the poverty line of Nepal. Challenging issues is to maintain the minimum living standard and daily expenses.

For adequacy we have another option-we can increase the amount -Rs. 4000 to 5000 and eligible age is aged 70 years. In this scheme its coverage is 3.6% of total population (1072755). Its cost will increase to 64.4 billion (25.049% increase in cost) i.e. 1.56% of GDP &5.42% of government expenditure.

Financial sustainability

There are different social security schemes in Nepal, basically focused for the elder person's social security. Above 70 aged peoples are eligible for old age an allowance which is called as universal scheme or social pension. All government permanent employees fulfil the condition then eligible for employee pension. Now 2,85,000 pensioner are enjoying employee pension. Both schemes are non-contributory. Expenditure of employee pension is 1.25% of GDP and 4.65% of government expenditure. Similarly universal pension is 2.25% of GDP and 9.30% of government expenditure. Coverage & adequacy of pension system is very challenging issues in Nepal. Similarly another issue is financial sustainability of pension.

The first one social pension which bears the highest expenditure than the government employees' pension. It covers 12,60,022 elder person aged 70+ years. The highest expenditure in this sector somehow gives the positive impact or result in the society positively. Its coverage is good, however there is a question - about its sustainability and in terms of adequacy is another issues.

In formal sector or government employee's general retirement age is 58 years then eligible for pension. But in informal sector, there are no any benefits as like. Most of the people work in the informal sector. All people aged 70 will get monthly basis allowances (Social Pension). Elder people 58-70 years of age who works in informal sector are not covered in social protection, so they have work or fully depend with their family. However there is kinship family system in Nepal so elder people look after and take care by their family.

Government Nepal has manage the budget for non-contributory social security scheme and employee pension as well. Day to day increase the pension expenditure, so issues arises regarding its sustainability and adequacy. However social pension's amount is above poverty line. The total GDP is about NRs. 4 Trillion in 2020 and the social pension expenditure is around NRs. 100 billion. It is nearly 2.5 percent of the GDP. cost of pension is increasing every year due to increasing life expectancy, increase in No. of pensioner & increasing pension amount (when salary increased) but government revenue is not increased as expected. social pension-positive and this scheme also helps to reduce the poverty in Nepal. Challenging issues in Financial sustainability in both employee pension & social pension scheme.

Nepal is a developing country and has many more priorities, like social security, infrastructure development and other government general expenses. Nepal has faces inflation, increases of prices in daily consumable goods. Due to such type of scenario current system is challenging it is not sufficient and appropriate. It caused effect the value for the money. .

Those who are receiving the universal pension is not adequate however they are feeling positive and simplify their livelihood. Social security scheme helps to reduce the poverty as well as provide respect and the dignity of life too.

Reform proposals

In Nepal, Government of Nepal provided Rs. 2600 to 4000 per month as a social pension (Old age allowances) to old aged people aged 70 years. In this provision 1072755 (3.6% of Total population) people has benefited and cost is around 51.5 billion i.e. 1.25% of GDP & 4.34% of government expenditure. Nepal government was managing the payment system by its own organizations and distributing it through banking channel.

Over the course of the past few years, several important legislative measures have been adopted to strengthen the social protection system of Nepal. Constitution of Nepal (2015) provides for a guarantee of social protection to the poor and vulnerable.

Despite relatively high government expenditure, social protection coverage is low, and most of the budget is taken up by the civil service pension fund, an employer-liability scheme. The contribution-based Social Security Act 2017 provides the legal framework for social insurance mechanisms in line with ILO Convention 102, which led to the establishment of the National Social Security Fund. The Fund targets formal sector employees, covering pensions (old-age, invalidity, and survivors), maternity and sickness, and employment injury. Informal economy workers (84% of the labour force) are not covered at all. Those people who have not income and unable to contribute in this case government will assist or protect to them as social security concept.

Life expectancy rate is increased of Nepalese people. Their working capacity is also extended then previous time due the changing their lifestyle and fooding style and sincere to their health issues. In this regard we can changed the scheme different way.

To maintain financial sustainability and to decrease the government expenditure on non-contributory pension, the compulsory retirement age can be increased to 63 years for all government employees. Senior citizen with age above 70 years and widow with age above 60 years are receiving social pension (Old age Allowances) by tax financing.

To maintain the sustainability issues, Government of Nepal has reformed the pension with starting the contributory pension system for civil servants, Police & Army personnel, government teachers and other employees of public entity two years ago. So, it will help to maintain the financial sustainability and it is politically viable too. Right now, the provision of contribution rate is 12% of salary (6% employee and 6% employer) for contributory pension. Life expectancy of Nepal was 35.58 years in 1960 and it is increased to 70.78 years in 2019. As being increased the worldwide life expectancy, it is better to reform the pensionable age & contribution rate as for strong sustainability of the pension system.

Here, question rises for sustainability for noncontributory employee pension and social pension. So Government of Nepal started contributory based social pension. however we have still question for sustainability of social pension. For its coverage sustainability and adequacy we can reform as follows:

Changes to service year 20 to 25 for pension and retirement ages is 60 to 65 (because our life expectancy rate also increased) and they will get pension when their age is 65.
Changes to contribution rates for contributory schemes 6% to 10% and same from employer.
minimum pensions is not less than 75% and not more than 100% of current positions salary.
for social pension - Rs 4000 for the age 65-75 and NPR 7500 for 75+ for those people who have not job & employee pension.

For effective service delivery administration we can use ICT with full automation and data based from the National ID No. So we have easy to projection and prompt service delivery.

[i]

[i] This report has submitted on the training entitled "EXECUTIVE E-LEARNING ON PENSION POLICY AND MANAGEMENT" on 1st Nov-31 December 2021, organized by ITCILO, Italy.

Pension System in Nepal (English Version) - By Dilip Raj Paudel

2022-08-01T07:10:00.007+06:00

Pension System in Nepal (Nepali version) By - Dilip Raj Paudel

2022-08-01T06:49:00.001+06:00

2018-11-13T21:43:00.000+06:00

सञ्चय काेष रकम कर्मचारी सञ्चय काेषमा नै किन ?
कर्मचारी सञ्चय काेष शाखा कार्यलय पाेखराका प्रमुख दिलिपराज पौडेलसंग अन्नपूर्ण एफ एम पोखराको कार्यक्रम हाम्रो सवालमा कार्यक्रम संचालिका सरिता तिमल्सिना पन्गेनिसंग कुराकानी गर्दै !!!

https://youtu.be/9Uw0iItXHLo

Information about Employees Provident Fund, Nepal ( कर्मचारी संचय कोषको ...

2018-08-01T22:33:00.001+06:00

RERFORMING SOCIAL SECURITY & PENSION SYSTEM IN NEPAL

2017-02-24T21:25:00.000+06:00

RERFORMING SOCIAL SECURITY & PENSION SYSTEM IN NEPAL

- Dilip Raj Paudel
PhD Research Scholar
(M. Phil., EMBA, MA(Soc), MA(Eco), B.Ed. B.L.)

The Context

The history of human being reflects that they have been facing various kinds of risks in their life cycle caused by illness, old age, disability, death, unemployment etc. Nowadays, social security system has been widely established as a major policy instrument for enabling people to have basic living standard and arranging financial support against unforeseen risks. As the prevailing schemes are maturing and socio-economic features are changing over time, the social security schemes are encountering various difficulties with respect to their sustainability, effectiveness and expansion or contraction to a preferable extent (Holzmann et al, 2000). Everyone, as a member of society, has the right to social security and is entitled to realization of social security through national legal provisions and international co-operation based on the institutional capacity and resources availability of each state. Social security is one of the basic fundamental human rights of people. It is essential for the well-being of society and has a significant impact on the livelihood of the human beings. It also has significant role in human beings for their old-age, either formal or informal sector of the country.

Social security makes a decisive contribution in establishing greater social justice and peace. The state sponsored social security system is promoted because of the weakening of the extended family system, which used to provide economic and social security to the family members. However, there is no strong and strategic plan and policy in Nepal. Actually we can say the issue arises only for the voting politics of the Nepalese leaders involved in different party. Social security as a synonym to retirement pension programs can be frequently found in literature. Social security in terms of retirement pension can be identified as a comprehensive program, which provides retirement security for workers and their dependents. Nowadays the concept of public pension is increasing. The pension benefit is guided by the national policy of state with the structural setup and influenced by the government policy led by the political leaders. Pension is a component of a social security which is a major phenomenon of public social policy today. But only government employee is entitled to get this benefit in Nepal leaving large segment of population outside of its ambit in Nepal. Public servants play the role of an agent of the state to deliver the goods and services for the people including the welfare services at all levels.

The basic principle of social security is the pooling of risks in a fund which can be applied to all nine of the social security contingencies (ILO, 2006, p. 9). These are (1) Sickness benefit;(2) Maternity benefit;(3) Employment injury benefit; (4) Unemployment benefit; (5) Invalidity benefit; (6) Old age benefit; (7) Survivor benefit; (8) Medical care; (9) Family benefits. Basically, these nine branches of social security declared by the ILO 102 have been derived from the diagnosis of poverty in the industrial countries where employment or full employment in the organized sector is the must. Protections are designed to protect the employees when they are out of work due to unforeseen circumstances.

The International Labour Organization (ILO), Social Security (Minimum Standards) Convention (No. 102), defined social security including the following issues:

Survival beyond a prescribed age, to be covered by old age pensions;
The loss of support suffered by a widow or child as the result of the death of the breadwinner (survivor’s benefit);
Responsibility for the maintenance of children (family benefit);
The treatment of any morbid condition (including pregnancy), whatever its cause (medical care);
A suspension of earnings due to pregnancy and confinement and their consequences (maternity benefit);
A suspension of earnings due to an inability to obtain suitable employment for protected persons who are capable of, and available for, work (unemployment benefits);
A suspension of earnings due to an incapacity for work resulting from a morbid condition (sickness leave benefit);
A permanent or persistent inability to engage in any gainful activity (disability benefits);
The costs and losses involved in medical care, sickness leave, invalidity and death of the breadwinner due to an occupational accident or disease (employment injuries).

Social security is a challenging issue in Nepal. The scope and benefit levels of social security are inadequate (Badal, 2005; Upadhyaya, 1998) and the coverage is limited. There is insufficient legislative provision regarding social security in Nepal. Upadhyaya (1998) says that a few provision of social security in labor law is limited only to formal sector. The level of benefits is not sufficient to provide adequate protection to the employees and their dependents while reviewing and considering the related rules and regulations.

There are very few study in the area of social security system and pension benefits with regard to sufficiency, adequacy, coverage and its sustainability in Nepal. No study on the reforming of the social security system in Nepal has been taken place in past. In such circumstances, designing a comprehensive framework of pension system as a social security based on people’s needs, government’s policy and capacity and other circumstances is one of the major concerns in Nepal. Social Security is inscribed as fundamental right by the Constitution of Nepal and hence is responsibility of the nation. So there is a need to reform the policy regarding the social security & pension benefits for all Nepalese people within the national boundary.

Why there is a need to reform the policy regarding the social security & pension:

Social Security is a universal right : The first social security programme based on compulsory insurance were established in Europe in the late-19th century. The development of social security has also been supported by various international conventions and instruments, and the recognition of social security as a basic human right was enshrined in the 1948 Universal Declaration of Human Rights. In a few countries, for example Germany and Brazil, social security is a right guaranteed by the Constitution. Today, most countries have some type of social security system. Worldwide, the most common type of programme is for old-age, disability, and survivors' pensions, followed by programmes for benefits for work injuries and occupational diseases, sickness and maternity, family allowances and unemployment. Similarly the Constitution of Nepal provisions social security as fundamental right of people.

Social security is a key to long term social and economic development: The social importance of social security systems for society is now widely accepted. However, there is less unanimity regarding the economic importance of social security systems. Regardless, that social security systems should be understood as a productive factor in economic development is a view that is gaining ground.

When arguing the case for the economic importance of social security provision, European social security history is particularly instructive. Many European countries introduced social security programmes early in their development; before they were rich societies. European history also shows that efficient economies and efficient social security systems can grow hand-in-hand, and that the latter is not a brake on the former. Clearly, all countries must develop their social security systems according to their own socio-economic needs and circumstances. Nonetheless, on the basis of European experience, the message for developing countries is a clear one: effective and efficient social security systems are key to long term social and economic development. In this regard we have need to reform our social security and pension system for its sustainability and economic development to the way forward social security for all.

According to available estimates, around 50 per cent of the global population has access to some form of social security, while only 20 per cent enjoy adequate social security coverage. The need to extend coverage is therefore a key challenge for social security organisations in all regions. However this can only be done while also addressing wider policy issues, including the demographic ageing of populations, evolving family structures, the impacts of economic globalization, the growth of informal labour markets, and epidemiological and environmental developments.

The social security benefit plays a vital role to motivate the people that relates it with the efficiency on work and helps increase in overall productivity. Human relations management tried to satisfy security needs through fringe benefits that provided some protection against illness, old age, unemployment and the vicissitudes of life as well as through managerial policies that treated employees with fairness. ILO states that social security contributes to economic growth by raising labor productivity and enhancing social stability.

In Nepal, there are various kinds of professions; business, workers, and those involved in agriculture, etc. Besides government and organized corporations’ employees, other people are not getting social security facilities provided either by government or by Employees Provident Fund (EPF). Government has started a part of social security's facilities i.e. old aged allowance and disabled allowance which lacks the inclusion of the entire population against the background that the concept of Social security should not be limited. Does the coverage and service provided by government and EPF sufficient? What are the needs of the people and how can those needs be addressed- are the relevant questions to be answered. As pension is essential to everyone for secured future.

Pension and provident fund are the two most prominent forms of old age benefits to Government Employees (Civil, Police, Army, Armed Police force, Teacher etc) of Nepal. The pension system in Nepal is non-contributory and the total liability of pension and gratuity is financed from annual appropriation of government budget. Rest of the population has not benefited by the pension or other social security benefits except the nominal old-age, widow allowances. So there is a need to reform our social security system and pension system as well. Apart from understanding the various aspects of social security system through the reviews of literature, attempt will be made to examine existing system of social security in Nepal from the perspective of pension system and its development in general.

As the given information from the Department of Civil Registration, Ministry of Federal Affairs and Local Development, Government of Nepal has distributed the Social Security Allowances under the different category and rate, which are as given below:

Ministry of Federal Affairs and Local Development, Government of Nepal has distributed the Social Security Allowances for the 22,89,282 persons for the FY 2073/74.

Status of Distribution of Social Security Allowances:

Source : Ministry of Federal Affairs and Local Development, Government of Nepal

Similarly, 525000 employees from the government and non government, like civil servants, Nepalese Army, Nepal Police, Armed Police force, corporation, Government school teacher and some private organization, is benefited from Employees Provident Fund facilities and only …. Number of Pension holder (only the government service holder: civil servants, Nepalese Army, Nepal Police, Armed Police force, corporation, Government school teacher ) enjoying pension facilities.

No of beneficiaries of Provident Fund:

Source : Annual Report of Employees Provident Fund 2072-73

Status of Distribution of Pension:

Source : Pension Management Office, Government of Nepal

Current Status of Pensioners & Expenditure :

Fiscal Year	Pensioner	Total Pension Expenses (TPE)	Average Pension Income / Year
Fiscal Year	Number	NRs.	NRs.
2011/2012	189560	11544493575	60901.53
2012/2013	196626	18299886523	93069.52
2013/2014	197963	22000000000	111131.88
2014/2015	212007	26010694707	122687.91
2015/2016 (8 Month)	219363	12334066323

Source : Pension Management Office, Government of Nepal

Mentioned data shows that very limited people of the country benefited by the pension as social security facilities. Similarly Old age people, single women, disable, indigenous and children from remote have received very small amount as social security allowances. In this scenario, we can raise the question regarding the social security responsibility of state regarding the coverage, adequacy and sustainability of the scheme. We can compare how many people benefited out of the total population? What amount or how many percentage for the social security benefits out of the total budget? What is the impact of this type of distribution? Is this type of modality to distribute social security benefits sustainable? how they can maintain their living standard and afford basic need for decent living. So there is a great need to reform the social security and pension system in Nepal.

After the 9^th amendment in Employees Provident Fund (EPF) Act 2019, EPF is interested to extend the social security coverage like, health insurance, provident fund for migrant workers and self employed people, contributory public pension scheme. EPF Nepal has been established as a provident Fund management. EPF has been providing some of the social security schemes and benefits for its contributors in two categories. One is financial benefits and another is social security benefits. In social security benefits, EPF has provided the Accident Indemnity Scheme, Funeral Grants Scheme, Medical reimbursement scheme, Maternity and Child Care Scheme etc. In financial facilities; Special Loan, House Loan-2057, Education Loan-2058, Revolving Loan, 2068, Low cost Housing scheme.

Government of Nepal has established the Social Security Fund (SSF) to provide security to those under economic as well as social threat. The Government has initiated works related to this field since few decades and hence, with the motive of extending its areas of work the organizational structure has been planned. Social protection which is being provided by various concerned authorities of the country to reduce the risks as well as assuring compensation in time of needs. However, SSF is not yet able to provide any social security benefits for the needy people.

Similarly a report published by the ILO in 2014 estimated that only 27% of the world's population has access to comprehensive social security. The debate of social security in developing countries has emerged largely since 1980s, promoted by several factors (Guhan, 1994; 35). Consequently, in large number of developing countries major social security services, still limit. Government schemes not included to its coverage.

Pension

A pension is a fund into which a sum of money is added during an employee's employment years, and from which payments are drawn to support the person's retirement from work in the form of periodic payments. A pension may be a "defined benefit plan" where a fixed sum is paid regularly to a person, or a "defined contribution plan" under which a fixed sum is invested and then becomes available at retirement age. Pensions should not be confused with severance pay; the former is usually paid in regular installments for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment prior to retirement.

A pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension. We can say pension is that value of money which is provided as a compensations for the person who has spent young and energetic life on the work as his/her contribution to any organization or country as well. The common use of the term pension is to describe the payments a person receives upon retirement, usually under pre-determined legal or contractual terms. A recipient of a retirement pension is known as a pensioner or retiree.

One of three pension formats as outlined by the World Bank in 1998 and which has since been adopted by many economically reforming countries in Central and Eastern Europe. As defined by World Bank we can say the goal of the three-pillar system is to separate the major objectives of pension (retirement) plans into the following pillars:

Pillar 1 – A standardized, state-run pension system, which offers basic coverage and is primarily focused on reducing poverty. The first pillar, a downsized successor to the old pay-as-you-go system where current workers pension contributions and taxes are used to finance current pensioners benefits.
Pillar 2 – A funded system that recipients and employers pay into; this includes pension funds and defined-contribution accounts/plans. The second pillar, a mandatory fully funded component of the pension system where each participant has an individual account and pension benefits are based on the contributions to this account and the returns on the investments of these contributions, and
Pillar 3–Voluntary private funded accounts, including individual savings plans, insurance, etc. The third pillar, a voluntary fully funded component, which refers to additional contributions each participant can make to her or his individual account in order to increase the future pension benefits.

(http://www.investopedia.com/terms/p/pensionpillar.asp#ixzz4BFIEBH9W)

Besides the three pillar system, research program related with social security raises the issues of four pillars. The Four Pillars is a research programme set up in 1987 by the Geneva Association, also known as the International Association for the Study of Insurance Economics. The aim of the Four Pillars research programme is to study the key importance in the new service economy of Social Security, Insurance, Savings and Employment. The programme focuses on the future of pensions, welfare and employment. The Geneva Association launched its Four Pillars research programme with a view to identifying possible solutions to the issue of the future financing of pensions and, more generally, to organising social security systems in our post-industrial societies. Demographic trends - especially increased life and health expectancy - could be seen as positive if we were able to devise ways of enabling "ageing in good-health populations" to make a valid economic and social contribution to the functioning of our service economies over the decades to come

Pension Indicators

In this volatile period, human beings want to secure their life and desires for safety. Normally, any Government has a responsibility to protect and providing the social security for the citizens. Pension is a kind of social security to secure their life in old age. Pension policy and provisions are different as country wise and rapidly changing around the world. As policy makers in more and more countries address the problems caused by population aging and the maturing of pension system, the demand for cross-country comparisons of pension indicators is both heavy and growing and day by day slightly changed in the area of pension reform floor.

World Bank's approach to pension policy has evolved, and focuses on issues related to financial sustainability and fiscal sustainability. Social security is established as a Human right, but how to manage the social security for all in the world? This is the issue. Issues of adequacy of retirement benefits and old age poverty, security of pensions in the face of risk and uncertainty, and administrative and economic efficiency.

The World Bank established a data base in 1990 to inform the analysis in averting the Old Age Crisis: Policies to protect the old and Promote growth. Its objectives is to help the data collection and publish the report about the impact of population ageing on pension systems and the appropriate policy responses which will useful for the necessary reform. The database and indicators are organized into three sets of information. The indicators of pension:

Environment: Environment analysis of demographic, economic, financial and institutional support for the performance of pension systems.
System design: System design is concerned with the national tax systems for the retirement benefits provision. It is related with the World Bank's multi-pillar framework.
Performance: Performance indicators of pension have six objectives and principles for which is related with coverage, adequacy, fiscal sustainability, efficiency (Economic efficiency & Administrative efficiency) and security. They are :

Coverage of the pension system, by both mandatory and voluntary schemes.
Adequacy of retirement benefits.
Financial sustainability and affordability of pensions to taxpayers and contributors.
Economic efficiency: minimizing the distortions of the retirement-income system on individuals' economic behavior, such as labor supply and savings outside of pension plans.
Administrative efficiency: keeping the cost of collecting contributions, paying benefits and (where necessary) managing investments as low as possible
Security of benefits in the face of different risks and uncertainties

Performance indicators of fiscal sustainability depend on underlying demographic pressures combined with the pension benefit formula. This framework illustrates the trade-offs inherent in the design of pension systems and reforms. All those key points are always important for the pension design and continuous process for pension reform.

To meet these challenges the World Bank Group’s pension financing team focuses on:

i) Improving the coverage of good quality pensions: Our goal is to ensure that elderly poverty is alleviated by the provision of income in retirement through pension systems that have broad coverage and are adequate, efficient, sustainable and secure. Our work supports financial inclusion and financial integrity.

ii) Increasing the supply of pension assets that can safely fund long-term investment: Promoting the productive investment of pension fund assets not only supports the goal of providing adequate and secure pensions, but also provides important sources of long-term finance for development.

To achieve our goals we work through country and regional engagements, as well as producing research and through our outreach program.

Country and regional engagements take many forms, and involve strong collaboration with World Bank Group colleagues working in the areas such as Social Protection and Labor, Capital Markets and Financial Inclusion. Projects include:

Designing, reviewing, and reforming the overall pension policy framework in a country
Drafting, reviewing, and revising the pension legislation and regulatory framework
Capacity building for supervision of the pension industry – including governance aspects
Improving pension market structure and dynamics including distribution and access; and
Reviewing and reforming the fiscal and taxation environment supporting a pension system.

Improving pension outcomes through comprehensive analysis and collaboration can be picturised on the given figure.

Source : World Bank

The given figure shows the elements of the efficient pension systems.

Source : World Bank

Social Security and pension system in Nepalese Context

In Nepal, there are various kinds of professions; business, workers, and those involved in agriculture, etc. Besides government and organized corporations’ employees, other people are not getting social security facilities provided either by government or by Employees Provident Fund (EPF). Government has started a part of social security's facilities i.e. old aged allowance and disabled allowance. However this does not include the entire population. Social security's concept should not be limited. Though it is being provided by government and EPF but is it sufficient? What are the needs of the people and how can those needs be addressed. Pension is needed to everybody and lives with secure future. That's why Nepalese social security system is a very suitable subject for sociology/anthropology. But there are very few anthropologists/ sociologists as well as other investigations that have focused on social security system in Nepal.

As the paradigm of development shifted from the investment in physical capital to human capital, the concern for social investments, human development, social development and integration; and poverty alleviation began to make inroads into Nepal's development thinking as well. It is interesting to note on how the concerns for social security in developing countries is growing when the developed nations, all over Europe and Americas are grappling with the crisis of social security. The worldwide recession, demographic changes and the changes in the social structure have imposed tremendous pressure on their social security systems that are once portrayed as the pride of industrialized nations.

Pension and provident fund are the two most prominent forms of old age benefits to civil servants of Nepal. The civil servants having at least 20 years service period are eligible to receive the pension during his/her life. The amount of pension to civil servants will not be less than 50% of basic salary and not more than 100% depending upon the service period. The pension system in Nepal is non-contributory and the total liability of pension and gratuity is financed from annual appropriation of government budget.

A pension benefit is a most important form of old age benefits. In history of Nepal, first Pension scheme was established to the army personnel since 17th bhadra 1998 BS. similarly it was established to the civil servants whose post in between the nausind to badakaji having at least 25 years service period are eligible to receive the pension as a 1/6 of taken salary. Thereafter, the civil servants having at least 20 years service period are eligible to receive the pension during his/her life. The amount of pension to civil servants will not be less than 50% of basic salary and not more than 100% depending upon the service period, last drawing salary and denominator. The civil servants having the service period less than 20 years are eligible to receive lump sum gratuity. The pension system in Nepal is non-contributory and the total liability of pension is financed from annual appropriation of government budget.

In 1936 A.D. non-contributory pension scheme was introduced to army personnel which was gradually extended to other government employees and employees of public enterprises. Recently more than 2,02,000 pensioners are enjoying the pension facility from government treasury and its cost is Rs. 11,54,44,93,575 (Approx). Out of them, 63000 civil servant pensioners are enjoying pension facilities. (Kaushi Toshakhana Karyalaya now called as Pension Management Office). Labour act, 1992 and Labour regulation, 1993 are the milestone for social security of private sector employees. They have ensured the work injury compensation, establishment of welfare fund, provident fund, gratuity, medical expenses and leave, accommodation facilities, childcare center, health and safety measures etc. (Pension Management Office, 2013)

A decade later, the Provident Fund scheme was extended to civil services as well. A separate organization named Nijamati Provident Fund was established in 1944 AD to manage the scheme for civil servants working within Kathmandu Valley. However, the scheme was not mandatory. In 1948 AD, the coverage of the scheme was extended and made mandatory providing the coverage to the entire civil servants working throughout Nepal. In 1959 AD, Employees' Provident Fund Department was established under the Ministry of Finance and Economic Affairs. This department was entrusted with the management of both Sainik Drabya Kosh and Nijamati Provident Fund. With this, the scope of the scheme was extended to cover all government employees including the police.

The social security scheme for unorganized sector started in 1995 with the introduction of non contributory old age pension to elder people (70 + years), helpless widows (60 + years) and disabled persons, free medical treatment to elder people and establishment of old age orphan houses. These schemes are financed from government budget.

In Nepal, the social protection has been accepted as a fundamental right of the people by the Interim Constitution of Nepal, 2007 AD (2063 BS). Section 35 (9) of the Interim Constitution of Nepal has stated that the state will follow a policy to pay special attention to protect the interest of women, orphans, children, old age people, the disabled, incapable and endangered race. Similarly the constitution has also ensured the social assistance to elder, women, disable, deprived and unemployed people. In July 2009, Nepal Government has introduced the social security tax.

Before the Eighth Five Year Plan, there were no specifying provisions about this matter. The Ninth Plan (1997-2002 AD) has made notable deviation by including the chapter about the social security. The chapter envisaged about the social security like as a need of helpless, disabled, senior citizen and also of indigenous people, ethnic groups, marginalized and oppressed community which was focused on the enhance the living standard. The Three Years Interim Plan, 2010-2013 has also emphasized on the improvement of social security system in Nepal by introducing some Social Security Programs, Welfare Fund effective and Employment Promotion Programs.

However, it is the responsibility of the government to promote the concept of welfare state and social justice. These schemes are still with limited coverage and effectiveness to support those people who are in need. The concept of social security in Nepal is gradually shifting from the realm of the family to the state. Traditionally and even to date, to a large extent, the institution including the extended joint family system and the community has performed the role of social security in Nepal.

A theory of contribution density in contributory pensions: Throughout time, many efforts have been made to develop detailed theories and studies of pension, satisfaction, and self-awareness. Each of those theories at some point has been applied and tested as to its effects on people’s satisfaction on adequacy, sustainability to maintain the secure and minimum living standards and personal goals in life and in the old age. It is important to look into different styles of the existing social security benefits. Whether these schemes are satisfactory or not in terms of quantity, service in time and procedure. It is assumed that if old age peoples are satisfied from the pension as social security benefits then they are happy and feel secured life to maintain the living standard. Ultimately, they become responsible, accountable to the society and government as well.

Due to the government's revenue and scarce resources, there is more limitation to the government and huge amount is used for the social security benefits. However these benefits are not sufficient and it's not sustainable because those expenses are dependent on government treasury; there is no any fund and other support. So we can predict that there may be financial crisis for the socials benefits schemes. International practices also show that contributory schemes should be sustainable and no more burden to the government. In this context there is an immense need to reform the social security benefits and pension schemes in Nepal from financial perspectives for the sustainability and continuity.

REFERENCES

Achenbaum, Andrew (1986). Social Security: Visions and Revisions. U.S.: Cambridge University Press.

Badal, R. (2005). Social security system in Nepal, Kathmandu: GEFONT.

Benavie, Arthur (2003). Social Security Under the Gun: What Every Informed Citizen Needs to Know About Pension Reform. New York: Palgrave Macmillan Gramlich.

Bhattacharya, V. R. (1970). Towards Democracy and Social Justice, Social Security Measures in India. Delhi: Metropolitan Book.

Burgess, R., & Stern, N. (1991). Social Security in Developing Countries: What, Why, Who, and How?, Social Security in Developing Countries. UK: Clarendon Press Oxford.

Edward, M. (1998). Is It Time to Reform Social Security? Ann Arbor: Univ. of Michigan Press.

Gautam, G.S.(2007). Social Security Arrangement in Nepal:Restructuring the System with Reference to Asian Experience. Japan: Osaka Sangyo University.

Khatiwada, Y.R. (2003).Social protection expenditure and performance review: Statistical trends in social protection expenditure, coverage and performance in Nepal. Kathmandu: ILO.

Kothari, C.R. (1990) : Research methodology, methods and Techniques (2^nd ed.). New Delhi: Wishwa Prakashan.

Mathema, P.(2012). National Social Security Policy: A Reality Need for Nepal. Administrative and Management Review Vol. 24, No. 2 August 2012.

Pant, P. R. (2012). Social Science Research and Thesis Writing, (6th edition). Kathmandu: Buddha Academic Publishers.

Pathak, P.K. (1986). Social security in Nepalese civil service. Kathmandu: CDPA (unpublished Thesis)

http://en.wikipedia.org/wiki/Social_security (Retrieved on 25th December, 2012)

http://www.issa.int/Topics/About-social-security (Retrieved on 25th December, 2012)

Universal Declaration of Human Rights. Plain language version. United Nations. http://www.un.org/cyberschoolbus/humanrights/resources/plain.asp. Retrieved on 20th April 2012.

Toshihiro Ihori and Toshiaki Tachibanaki ( 2002 ). Social Security Reform in Advance Countries Evaluating pension finance. London and New York: Taylor & Francis Group

Policy making in Globalization and democratic Society

2015-08-30T19:15:00.000+06:00

Policy making in Globalization and democratic Society By : Dilip Raj Paudel

The common principle is ‘the policy once made is not for ever’. With the lapse of time change in the environment, the policy change is inevitable. The fact is that policies are constantly evolving and policy cycle is an ongoing dynamic process. But change cannot be only seen through policy cycle. Process model or stage model also shows the pattern of evolvement of policy. Changes may be as a result of policy evaluation, but policy change also results from the change in environment. It may be the cause as well as the effects. Policy change is a consequence of the change in the environment (change in the concept, idea, and the development of the organizational structure). New policies frequently emerge from the existing policies. Policy change is also the result of the earlier policies with the changes in conditions (worst condition than past one or vice versa) which demand the new policies as existing one proves to be insufficient or inadequate. Any new policies are likely to be the revision of the old one. These have also been proved by incremental theory. Policy change does not happen overnight or in vacuum. There are certain reasons, factors that support policy change. They are : • Changes in the political environment- • Changes in the economic conditions or social dynamics. • Change in the technology • Changes in the bureaucratic structure • Cultural factors • Invalidation or contraction of the existing • Opposition by target group • If the feedback show defects in policies. Types of Policy Change There are four types of Policy Change: 1. Policy Succession – The replacement of the existing policy by the new policy. Replacement is the type of change but change is usually continuous with the existing policy and is also deliberate and intended change. Forms of Policy Successions are a) Linear Succession, b) Consolidation, c) Splitting and d) Non Linear Successor: 2. Policy Innovation: Policy Innovation involves the government involvement into entirely new type of activity. Policy Innovation is also a deliberate /purposive attempt /actions. The area , concept is new hence it may not have base also such as legal frame, institution, resources. Government has to start from the zero. 3. Policy Maintenance : It Involves adaptation of policies /adjustments of the policies to keep the policies on track. Innovation may be viewed as a process of change on a continuum with the policy maintenance and Innovation. E.g. Health education on Smoking 4. Policy Termination: It is the abandonment or ending of any policy /programs/ organization. Hence after termination, it may be ex policy and will be no longer in operation. There are four aspects of policy termination: o Functional Aspects: o Organizational Termination: o Policy Termination: o Programs Policy Succession Policy Innovation Policy Maintenance Policy Termination Replacement of existing Policies New Policies Policy change may be occurred by the globalization. Globalization and Public Policy Making is the concern of globalization of national policies and policy making. National/domestic policies which once used to be under the jurisdiction of national government /individual state /people/ citizen of the state now have come under the influence of international agencies, big private houses, multinational /transnational agencies, economic and financial players whether it is countries or organizations. This has resulted in erosion of national sovereignty and narrowed down the ability of government and people to make choices from options in case of the favorable policies. Hence globalization has reduced the ability of the national government to make choices independently. National governments feel that they have lost the control over the national policy agenda. International, multinational interest groups, global news media and major financial players, agencies, all influence the demands of the domestic government and policy options available to the government. One of the important consequences of globalization is the increasing participation in the international organization /arena/affairs and adoption of agreements which are binding in nature. These have resulted in pulling of sovereignty in the international level. It also reduces the scope and ability of the national government to follow /adopt specific policy. This has also resulted in the modification of the already established policies of the national government based on certain values and practice and thereby adoption of entire new policy. Globalization has changed the context in which the national government operates. Domestic policy issues are heavily influenced by the actors and events which are beyond the control of the ability of the government. Actions and reactions and the developing scenario at international level cannot be ignored while formulating the national policies. National policy issues are being constrained by the international level. Domestic policy independence is narrowed by the inter dependence. The social and economic interdependence affects the national decision making. Transfer of national policy making from national to international level. Policy instruments remain beyond the control of national government. Policy instruments are a mechanism /tool used by the government to get the desired result /outcome. Policy instruments both regulatory and economic/financial are being controlled by the international players. Government have to implement policies in line with the decisions and rules of the international agencies/practice/norms etc. The above mentioned issues indicate the erosion of national policy making capacity. Independent policy making capacity of the national government is narrowed down. Examples: Major economic /financial agencies are stationed in developed countries. Developed countries have full control/influence over the process and policies of these economic /financial agencies. They are also in a better position to control their own policies as well as the globalization agenda and its contents. This ultimately affects the national policies and content of globalization. There are several factors behind the erosion of national policy making capacity. Erosion of national policy making capacity e.g.-results from technological advancement and liberalization of market .Technological development in the field of satellite TV, email and internet etc had made difficult for the countries to develop communication and cultural policies and control over the spread of information. Liberalization of the market has created a condition where there is a free flow of capital and major economic and finance players controlling the large amount of capital have made the countries difficult in managing the cash flow in and out of the country and maintaining the currency exchange. National government has to comply with the obligation under several issues within the scope of WTO. This means that many domestic policies of developing countries are being made in the WTO negotiations table rather than in the national parliament. Loan conditionality have been an important instrument of global dissemination of national macroeconomic policy packages e.g. National government /developing countries who want to reschedule their debt have to follow structural adjustment programs. (SAP). SAP includes macroeconomic policies, social policies, privatization, governance and financial policies. Scope and ability of the policy makers have also narrowed down through globalization. Erosion differs in degree from one to another country depending upon their capacity to negotiate and resist. It has put the scope and ability of independent creative policy makers into shadow. National policy making mechanism have been greatly affected by globalization. The national Policy mechanism is also affected. Cross border movement, flow of idea /concepts, technology, have compelled national government to enhance the competitiveness in terms of the adjustments of the policy. Democratic policy making consists of two aspects namely participation of civil society in policy making process (Civil engagement) and public opinion. Public opinion and democratic policy making: Democratic way of making public policies demands basic public opinion for formulating public policies. Democratic norms are the acceptance of public opinion as a source of public policy making. The literatures about democratic politics widely believe that public generate policies. Public opinion is reflected in: a. election b. public policy c. laws/ legislative, enactments. Public opinion means the judgment of public / citizen regarding any specific policy issues or set of policy issues at any moment of time. If such judgment gets space/significance / importance while formulating the public policy it is said to be democratic policy making .This is the crux of democratic policy making. Public opinion in a democratic society is a basis for identifying to developing the range of policy opinions that are acceptable to the people. The method of using public opinion for public policy decision making represents a democratic way of policy making. In any democracy, the policy makers / politicians and policy outcome should be responsive to the changes in the pattern of public opinion. In this context, there are two important aspects/considerations: 1. The citizens/public do have the policy preference and the citizens are able and willing to communicate their opinion to the concerned authority. 2. An environment conducive to express public opinion / communication of the public opinion exists to facilitate public participation. There must be conformity in the expressed opinion and adopted policy. There is also exception that policies frequently do not match with the public opinion, there may be several reasons for this and such reasons are guided by the particular need of the situations. The beauty of the democracy is the acceptance of public opinion and change in the public policy making accordingly. The role/place of public opinion in Policy Making An easy solutions to the policy problems/issues can be ensured only when the policy/ law is the product/ result/reflection of the public opinion, views. Citizens accept or obey policies only when it is based on the will of the citizens or preference of citizens. The whole process policy making acts as a means to review the distinction between the policy provider and the receiver. Democratic policy making supports/postulates free organization of public opinion. There should not be any distinction between opposing/conflicting opinions. Acceptance to opposing interest is to acceptance to compromise/agreement/disagreement/logical compromise. In other words it also helps establish adjustment on policy measures. The existence of diverse opinion in democratic society is the creative source of developing policy opinion. Therefore democratic policy making is responsive to pattern of changes in policy making at large -majority of public opinion. There must be conducive environment for the expression of communication of public opinion. Democratic policy making accepts the free flow of public opinion. Public opinions are always registered/welcomed/ channeled in democracies. Democracy (Democratic Type of Decision Making) is differentiated from other form of government on the basis of assumptions of diffusion of power rather than concentration of power in one place. Public opinion is a means for checking diffusion of power. It is because the government is a type of organization of power. Balance must be ensured in the structure of the community for the function of the democracy. Democratic structure survives only when there is balance of power in the society and it is only possible when there is acceptance of public opinion and also acceptance of opposing interest. No any power/group/absolute group can seize/hijack the opportunity than it deserve and cannot prevent the use of opportunities by other group/s. This ultimately acts a measure to control the undue pressure from certain group to the government. Exception: There will be no significance/meaning of public opinion if such opinions are created out of coercion and there is disrespect for other opinion. Other Aspects /Issues Public opinion policy If we accept that public opinion determines public policy then it is necessary to consider the place of propagator of public opinion. The medium of opinion propagators are largely the government agencies, the public relation campaign, it could be – legislative, executives, judiciaries, administrative machineries, street level bureaucrats, political parties and professional interest groups. The basic idea behind the public opinion is the Public opinions are directed towards the achievements of collective interest. There is also the possibility of manipulation of opinion forming processes. Powerful group/s may control the public opinion forming group /process, even media can control. Hence any group should reach the public without any vested interest. Policy makers themselves do have the opportunity to influence the public opinions. In such cases policy might be adjusted in line with the interests of the policy makers. There are certain measures for the expression of policy opinions. o Voting in the election campaign o Petition signing o Writing and speaking to policy makers Citizens can have impact upon policies by exercising the right of access to information. Public participation is possible only when the public is given full access to the all types of government held information. Improved access to information reinforces the structure of channel of communication and control. Public participation in any form of public hearings, consultations with the concerned experts and professionals and public panels for specific cases can be utilized widely for democratic policy processes. One of the important methods to insure public accountability, acceptance and respect of public opinion is the provision of legislative in which the constituent or members of society can call back their elected representatives from office if they fail to fulfill their responsibilities. It is the popular method of controlling the policies / opinions. Accountability of the democratic government can be enhanced if there is full access to government laid information. The most important role can be played by the parliament. Parliament acts as the medium to make government sensitive towards public opinion. If government provides full information to the peoples, then appropriate opinion/input can be come from the citizen during the policy making process or election. Mechanism of Democratic policy making is always stands at centre while making policy. The most important being election, public opinion pools, referendum, consideration of opinions of organized groups, professionals, representative from interest groups, parties etc.

2013-06-25T08:02:00.003+07:00

The Role of Social Security Benefits to Motivate

the Nepalese Civil Servants[1]

[1] (Exclusive Summary of the thesis submitted to CDPA(TU) by Dilip Raj Paudel, M. Phil-2011, Roll No. 26)

1 Background

During the history of Human beings, they have been facing various kinds of risks in their life cycle caused by illness, old age, disability, death, unemployment etc. Nowadays, Social security system has been widely established as a major policy instrument for enabling people to have basic living standard, arranging financial support against unforeseen risks. Everyone, as a member of society, has the right to social security. Studies have shown that social security makes the workers accept the organizational goals. It develops positive attitude among the workers towards structural and technical changes to meet more challenges. Finally Social Security Benefits (SSB) plays a vital role to motivate the people and workers or civil servants as well. This study is focused on the role of social security to motivate the Nepalese Civil Servants.

The performance that employers look for in individuals rests on ability, motivation, and the support individuals receive; however, motivation is often the missing variable. Motivation is the desire within a person causing that person to act. People usually act for one reason: to reach a goal. Thus, motivation is a goal directed drive, and it seldom occurs in a void. The words need, want, desire, and drive are all similar to motive, from which the word motivation is derived. Understanding motivation is important because performance, reaction to compensation, and other HR concerns are related to motivation. Motivational theories can be classified into two categories, namely content theories and process theories. Content theories of motivation are specifically related to job satisfaction and assume a direct relationship between job satisfaction and improved performance, while the process theories contemplate in more detail the relationship between motivation, satisfaction and performance.

Employee’s outstanding performance and commitment to work and dedication to an organization can be done with a motivation factor. Good morale in any organization allows for more productive and happy employees. Civil servants are motivated to their job if they feel secured, maintaining expenses, increasing living standard and quality of life, in terms of the satisfaction level of social security benefits. Thus, the social security benefits played a vital role to motivate the civil servants in their job, ultimately it is directly related with the efficiency on work and increase in overall productivity.

2. Statement of the Problem

The level of benefits is not sufficient to provide adequate protection to the employees and their dependents while reviewing and considering the related rules and regulations. Its practices and coverage of Social Security in terms of contingencies is also inadequate. The basic principle of social security is the pooling of risks in a fund which can be applied to all nine of the social security contingencies. These are (1) Sickness benefit;(2) Maternity benefit;(3) Employment injury benefit; (4) Unemployment benefit; (5) Invalidity benefit; (6) Old age benefit; (7) Survivor benefit; (8) Medical care; (9) Family benefits.

Nepal is a member state of International Labor Organization (ILO) since 30^thAugust 1966 AD. The Social Security (Minimum Standards) Convention, 1952 (No. 102), is the flagship of ILO social security Conventions. 48 countries have ratified the ILO Convention 102 by December 2010 AD. Nepal has not ratified this convention till date. Convention suggest, at least 3 benefits should be provided for the concept of social security. Policy, laws and mechanism in the field of social security in Nepal are weak and poor. There is lacking political will in the field of Social Security. Social Security covers less than 5 percent of total workforce in Nepalese context.

This study is focused on the social security benefits for the civil servants in Nepal. Social security benefits or schemes play role in enhancing the work efficiency and performance of civil employees. This shows that if they are motivated to their job then there will be increased in the work efficiency and performance. Understanding the various aspects of social security system through the reviews of literature, attempt is made to examine existing system, of social security for civil servants in Nepal and its development in general and measure the level of satisfaction.

3 Research Questions

Considering the above described background, it is to explore answers to the following research question.

· What is the relationship between social security and motivation?

· Are the Nepalese civil servants satisfied with the existing social security benefits?

· To what extent different SSB affect the motivational level of the Civil Servants.

4. Objectives of the Study

This research aims to address the following research objectives:

1. To find out the satisfaction level of Nepalese civil servants with the existing social security benefits?

2. To examine the role of the component of different SSB's to motivate the Nepalese civil service?

5. Social Security and Nepalese Civil Service

Civil Service is the one of the foundations of the government. In order to make civil service professional and public service delivery effective, efficient civil servants must be motivated. Government employees include civil servants, army, police and teachers of public schools. Social Security benefits were established by the civil service act and civil service rule, 2013 BS.

Any employer is entitled to maintained plan, offering policy holders and their dependents services or benefits upon illness, death, or unemployment. In this study, my concentration is the status of social security benefits regarding its policy factor and intuitional arrangement factors. Here the given provisions are found in civil service act, namely

a. Provident Fund , Pension , Gratuity, Sickness and medical treatment , Work Injury , Maternity , Work Accidents and Survivor Benefits

6. Theoretical Discussions

A) Social Justice Theory

The concept of Social justice is based on human rights and equality (Bowring, 2002). A definition of social welfare based on Bentham is equivalent to maximizing the expected utility of a member of a population behind a veil of ignorance and results in incomplete insurance. Social welfare schemes motivate the people for their productive work. The concept of social security follows the concept of social welfare with social justice. If there is no any policy about the social security, there is no social justice under the concept of social security.

Social welfare program is a part of social justice. Social justice is a responsibility of government and hence, government provides the social welfare program to the people. ILO convention 102 suggests the 9 branches of social security program as welfare benefits as a social justice. These programs play a vital role to motivate the people for the productivity. We can say motivation of employee is an important part of any organization either public or private. If employees are not motivated to their job then the productivity is decreased as well as organizations goal will not be achieved. If they are motivated then their productivity will be increased which will support to run the government mechanism with 3-E like as economy, efficiency and effectively. When their productivity is increased then they are responsible and accountable with economy, efficiency and effectively on their duty. This will support to run the successful government with the concept of welfare state at one side and other to the personal betterment of individuals.

B) Motivation Theory

Mullins states that "Motivation is a process which may lead to job satisfaction". There are many different theories that try and help explain motivation. The given figure shows the theoretical development of motivation. The figure shows that the content theories, process theories and contemporary theories are related with the motivation.

Motivation Approaches

1900 Present	Scientific management (wage incentives)
	Human Relations (economic security, working conditions)	Lewin and Tolman (expectancy concerns)
	Maslow (Hierarchy of needs)	Vroom (valence/ expectancy)
	Herzberg (Motivators and hygiene factors)	Porter and Lawler (performance-satisfaction)	Festinger and Homans (cognitive dissonance/exchange)
	Alderfer (ERG needs)	Lowler (E->P and P->O expectancies)	Adams (equity/justice)
	Content Theories	Process Theories	Contemporary Theories
	Work Motivation

Source: Fred Luthans, Organizational Behavior, 10^th Edition, Mc Graw Hill, India, 2005,

The content theories of work motivation attempt to determine what motivates people at work. The content theorists concerned with the types of incentives or goals that people strive to attain in order to be satisfied and perform well. Similarly Process theories and contemporary theories are also related with the work motivation. Herzberg's Two-Factor Theory of motivation is taken for this study.

According to Herzberg, individuals are not content with the satisfaction of lower-order needs at work, for example, those associated with minimum salary levels or safe and pleasant working conditions. Rather, individuals look for the gratification of higher-level psychological needs having to do with achievement, recognition, responsibility, advancement, and the nature of the work itself. So far, this appears to parallel Maslow's theory of hierarchy of needs..

However, Herzberg two-factor theory suggests that to improve job attitudes and productivity, administrators must recognize and attend to both sets of characteristics and not assume that an increase in satisfaction leads to decrease in unpleasurable dissatisfaction. Herzberg classified these job factors into two categories as Hygiene factors and motivational factors.

7. The Theoretical Framework of the Study

The theoretical framework of this study is as given below.

Conceptual Framework

Satisfaction/Motivation level of the civil servants within the social security benefits in Nepalese civil service

Sickness benefit

Maternity benefit

Provident Fund

Pension

Independent Variables Dependent Variable

Analytical Matrix

Theory	Independent Variable	Dependent Variable
*Motivation Theory*	Sickness benefit (Amount)	The level of motivation of Nepalese Civil Servants from the existing Social Security Benefits
	Maternity benefit (Amount & Leave Day)
	Provident Fund (Contribution %, Policy)
	Pension (Amount, Pension year for dependent)

8. Hypothesis

The objectives of this study is to examine "The level of motivation of Nepalese Civil Servants from the existing Social Security Benefits" and explore the provisions related with social security benefits based on the questionnaire, interview and literature review. As the data are of qualitative in nature, there is no need to construct the hypothesis and test those. Rigorous statistical analysis will not be undertaken to test the hypothesis. However, the hypothetical statements for the study will be as following. The hypothesis is that:

(a) Civil servants are fully satisfied by the provisions of social security benefits given to them.

(b) The social security provisions given to civil servants have highly motivated to be effective and efficient in the performance of their job.

9. Methodology

Research Method-Study objectives matrix

Objectives	Nature and sources of data	Research Method	Techniques
1. To explore, the present status of social security system in Nepalese civil service.	Secondary data	Analysis of provision by law and related documents.	content analysis
2. To find out the satisfaction level of Nepalese civil servants with the existing social security benefits? 3. To examine the role of the component of different SSB's to motivate the Nepalese civil service?	Primary data	Questionnaire	Use of attitude scale

Particulars	Description
Research Design	Descriptive based on both qualitative and quantitative approach/mixed embedded method
Sources of Data	Secondary and Primary
Population of Study	All Civil Servants
Sample	120 questionnaire: Total : 120 (Male = 90 + Female= 30 ) Job Holder : 100 (Male = 78 + Female=22) Retired : 20 (Male = 12 + Female= 8 ) Discussion/Interaction with high level Civil Servants, those are involve in policy making
Analytical Tools	Analysis of collected data, methods of content analysis, percentage, tables and charts

10.Findings.

Satisfaction Level of Social Security Benefits

	Satisfaction Level of Social Security Benefits						Total
	Little		Average		High		Total
	No.	%	No.	%	No.	%
Sickness Benefit	64	53.33	32	26.67	24	20.00	120
Maternity Benefit	40	33.33	42	35.00	36	30.00	118
Provident Fund	34	28.33	44	36.67	42	35.00	120
Pension	22	18.33	38	31.67	60	50.00	120

Source : Field Survey, 2013

Satisfaction Level - in Terms of Motivation at Work

	Satisfaction Level - in Terms of Motivation at Work						Total
	Little		Average		High		Total
	No.	%	No.	%	No.	%
Sickness Benefit	54	45.00	44	36.67	22	18.33	120
Maternity Benefit	54	45.00	40	33.33	26	21.67	120
Provident Fund	52	43.33	46	38.33	22	18.33	120
Pension	42	35.00	46	38.33	32	26.67	120

Source : Field Survey, 2013

11. Conclusions

The overall satisfaction level of social security benefits were analyzed on the basis of three aspects- present scenario of identified areas of Social Security Benefits namely Sickness benefits, maternity Benefits, Provident Fund and Pension on the basis of secondary information. Information gathered from the secondary sources, and primary sources of data of each identified variables on the basis of the views of the 120 respondents.

Sickness Benefits : Civil Servants response on the sickness benefit is in two aspects. One is sickness leave and other one is treatment expenses. Whenever they or their family has hospitalized for the treatment, Hospital charge is too much expensive they cannot able to maintain hospital and medicine bill and other expenses at that time. Generally, sickness benefits getting after retirement. Before retirement or in job period, the process of getting the sickness benefit is not so easy. The process is very slow long and tedious, however no sufficient amount. The present provision of sickness benefit is different as their holding post wise, but it is need to equal for all class is better. No health care or medical insurance system to cover the full expenses. So need to manage health insurance with to cover the all risks and expenses as system of western countries like America, Canada, and Australia etc. Civil Service Hospital has established in Kathmandu only, so not easy to come there from all over the Nepal. so it has needed to manage this type of hospital operate in different region is highly recommended. Civil Service Hospital should be made free to all civil service personnel's and their family like as an Army Hospital and police Hospital in Nepal. If all expenses of sickness is beared by the government or covered by insurance, then they have no any burden about the sickness, then they feel secure in their life. Finally, sickness benefits is a component of Social Security benefits, which plays a vital role to motivate the government employees in their job.

Maternity: Civil Servants response to the maternity benefit is in three aspects. One is leave of maternity leave and maternity care leave. Second one is maternity care allowances and all expenses in between the maternity period and last one is child care. Most of them suggested for 6 months paid leave and other 6 months unpaid maternity leave for the provision of breast feeding uses and mother is looking after her child is as a right of infants. Maternity care leave is not sufficient and better to extent one month to care his child and his wife as his social responsibility to care them. Maternity care allowances should be increase to maintain the nutrition's foods for mother and children. Government should bear the all hospital expenses/charges/bills and medicine as well as a prescription or totally free for the hospital service and medicines also. Government should provide all kinds of facilities for maternity care and manage the free child care center facilities in their office area. All expenses of maternity benefits is beared by the government, then they feel secure happy in their life. Finally, we can say maternity benefits are one of the components of Social Security benefits, which plays a vital role to motivate the government employees in their job.

Provident Fund: Provident fund benefit is in four aspects. First one is contribution percentage of salary, second one is responsible authority to the contribution, third one is facilities provided by EPF, and last fourth one is appropriate policy for the utilization of contribution. Existing contribution percentage of salary is 10% from employee is not sufficient, 10% of salary is very little. Some respondents suggested as a voluntary contribution option is also better as employees choice. Presently employee and employeers only responsible authority to contribute the provident fund amount. Government, employer and employee (3-tier) are responsible authority to contribute the provident fund amount for the employee. Facilities provided by EPF is that, Employes provident fund has manage the some of the facilities for the contributors, like as 90% special Loan, House loan amount up to 120 month’s basic salary; education loan amount up to Rs 9,00,000 within the country and Rs. 12,00,000 in abord. Similarly revolving Loan can be taken maximum upper limit is Rs. 20,0000 . Other facilities like as accidental compensation up to Rs 100000 and Rs 25,000 as a funeral grants etc. They are not fully satisfied from the above facilities and they are suggested to increase the amount of all loan and other facilities. Because of the market price and inflation. Provident fund is a retirement fund, so it should be saving for the future and taking after retirement. Present time is also important in our life and need money time to time. So it will be the better policy to utilization of provident fund amount as 50% within a service period and 50% for the after retirement. Retirement fund helped to maintain their life after retirement. Provident fund can be help to feel secure and happy in their retired life. Finally, we can say provident fund benefits are one of the components of Social Security benefits, which plays a role to motivate the employees.

Pension : Pension benefit is in three aspects. First one is calculation method of pension and its value, second one is pensions for the dependent in terms of period and value, and last one is maintaining the daily expenses and living standard in retired life. existing calculation method and its value is not sufficient to maintain their daily expenses. pension period and pension amount for their dependents, is that government should taking responsibility and provide them up to life time with 100% amount of pension of his/her spouse. Respondent's view on the maintaining the daily expenses and living standard in retired life is that, present pension amount is very little due to the inflation and market rate. Livelihood becoming more expensive. After retirement pension is only a source of income for retired employee or dependent of his/her. So it should be manage or increase as a price level to maintaining daily life. Due to the market condition of present situations no one can maintain their normal living standard from present pension amount. Pension fund helped to maintain their life after retirement with feeling secure and happy in their retired life. Finally, we can say pension fund benefits are one of the components of Social Security benefits, which plays a role to motivate the employees.

5.4 Suggestion for Further Study

The present study has focused on social security benefits and role to motivate the Nepalese civil servants based on the identified four factors as independent variables namely: (a) sickness benefit (b) maternity benefit (c) provident fund and (d) pension benefits. his study does not provide the comprehensive analysis on all aspects and factors related with social security benefits and motivational level but it may suggest the areas for further study in social security benefits and its role to motivation in several aspects, some of which could be;

· Policy level issues related with social security benefits and employees motivation ;

· Its status in government agencies and private sector;

· The role of employees to enhance the performance of organization due to the social security benefits and its motivational level.

[1] (Exclusive Summary of the thesis submitted to CDPA(TU) by Dilip Raj Paudel, M. Phil-2011, Roll No. 26)

2013-06-25T08:02:00.001+07:00

The Role of Social Security Benefits to Motivate

the Nepalese Civil Servants[1]

[1] (Exclusive Summary of the thesis submitted to CDPA(TU) by Dilip Raj Paudel, M. Phil-2011, Roll No. 26)

1 Background

2. Statement of the Problem

3 Research Questions

Considering the above described background, it is to explore answers to the following research question.

· What is the relationship between social security and motivation?

· Are the Nepalese civil servants satisfied with the existing social security benefits?

· To what extent different SSB affect the motivational level of the Civil Servants.

4. Objectives of the Study

This research aims to address the following research objectives:

1. To find out the satisfaction level of Nepalese civil servants with the existing social security benefits?

2. To examine the role of the component of different SSB's to motivate the Nepalese civil service?

5. Social Security and Nepalese Civil Service

a. Provident Fund , Pension , Gratuity, Sickness and medical treatment , Work Injury , Maternity , Work Accidents and Survivor Benefits

6. Theoretical Discussions

A) Social Justice Theory

B) Motivation Theory

Motivation Approaches

1900 Present	Scientific management (wage incentives)
	Human Relations (economic security, working conditions)	Lewin and Tolman (expectancy concerns)
	Maslow (Hierarchy of needs)	Vroom (valence/ expectancy)
	Herzberg (Motivators and hygiene factors)	Porter and Lawler (performance-satisfaction)	Festinger and Homans (cognitive dissonance/exchange)
	Alderfer (ERG needs)	Lowler (E->P and P->O expectancies)	Adams (equity/justice)
	Content Theories	Process Theories	Contemporary Theories
	Work Motivation

Source: Fred Luthans, Organizational Behavior, 10^th Edition, Mc Graw Hill, India, 2005,

7. The Theoretical Framework of the Study

The theoretical framework of this study is as given below.

Conceptual Framework

Satisfaction/Motivation level of the civil servants within the social security benefits in Nepalese civil service

Sickness benefit

Maternity benefit

Provident Fund

Pension

Independent Variables Dependent Variable

Analytical Matrix

Theory	Independent Variable	Dependent Variable
*Motivation Theory*	Sickness benefit (Amount)	The level of motivation of Nepalese Civil Servants from the existing Social Security Benefits
	Maternity benefit (Amount & Leave Day)
	Provident Fund (Contribution %, Policy)
	Pension (Amount, Pension year for dependent)

8. Hypothesis

(a) Civil servants are fully satisfied by the provisions of social security benefits given to them.

(b) The social security provisions given to civil servants have highly motivated to be effective and efficient in the performance of their job.

9. Methodology

Research Method-Study objectives matrix

Objectives	Nature and sources of data	Research Method	Techniques
1. To explore, the present status of social security system in Nepalese civil service.	Secondary data	Analysis of provision by law and related documents.	content analysis
2. To find out the satisfaction level of Nepalese civil servants with the existing social security benefits? 3. To examine the role of the component of different SSB's to motivate the Nepalese civil service?	Primary data	Questionnaire	Use of attitude scale

Particulars	Description
Research Design	Descriptive based on both qualitative and quantitative approach/mixed embedded method
Sources of Data	Secondary and Primary
Population of Study	All Civil Servants
Sample	120 questionnaire: Total : 120 (Male = 90 + Female= 30 ) Job Holder : 100 (Male = 78 + Female=22) Retired : 20 (Male = 12 + Female= 8 ) Discussion/Interaction with high level Civil Servants, those are involve in policy making
Analytical Tools	Analysis of collected data, methods of content analysis, percentage, tables and charts

10.Findings.

Satisfaction Level of Social Security Benefits

	Satisfaction Level of Social Security Benefits						Total
	Little		Average		High		Total
	No.	%	No.	%	No.	%
Sickness Benefit	64	53.33	32	26.67	24	20.00	120
Maternity Benefit	40	33.33	42	35.00	36	30.00	118
Provident Fund	34	28.33	44	36.67	42	35.00	120
Pension	22	18.33	38	31.67	60	50.00	120

Source : Field Survey, 2013

Satisfaction Level - in Terms of Motivation at Work

	Satisfaction Level - in Terms of Motivation at Work						Total
	Little		Average		High		Total
	No.	%	No.	%	No.	%
Sickness Benefit	54	45.00	44	36.67	22	18.33	120
Maternity Benefit	54	45.00	40	33.33	26	21.67	120
Provident Fund	52	43.33	46	38.33	22	18.33	120
Pension	42	35.00	46	38.33	32	26.67	120

Source : Field Survey, 2013

11. Conclusions

Pension : Pension benefit is in three aspects. First one is calculation method of pension and its value, second one is pensions for the dependent in terms of period and value, and last one is maintaining the daily expenses and living standard in retired life. existing calculation method and its value is not sufficient to maintain their daily expenses. pension period and pension amount for their dependents, is that government should taking responsibility and provide them up to life time with 100% amount of pension of his/her spouse. Respondent's view on the maintaining the daily expenses and living standard in retired life is that, present pension amount is very little due to the inflation and market rate. Livelihood becoming more expensive. After retirement pension is only a source of income for retired employee or dependent of his/her. So it should be manage or increase as a price level to maintaining daily life. Due to the market condition of present situations no one can maintain their normal living standard from present pension amount. Pension fund helped to maintain their life after retirement with feeling secure and happy in their retired life. Finally, we can say pension fund benefits are one of the components of Social Security benefits, which plays a role to motivate the employees.

5.4 Suggestion for Further Study

· Policy level issues related with social security benefits and employees motivation ;

· Its status in government agencies and private sector;

· The role of employees to enhance the performance of organization due to the social security benefits and its motivational level.

[1] (Exclusive Summary of the thesis submitted to CDPA(TU) by Dilip Raj Paudel, M. Phil-2011, Roll No. 26)

Dilip Raj Paudel's blog

Dormant Bank Deposits in Nepal: Balancing Property Rights and Public Interest

निष्क्रिय बैंक निक्षेप: सम्पत्ति अधिकार र सार्वजनिक हितबीच सन्तुलनको आवश्यकता

The Role of the Employees Provident Fund in Contributory Pension and Social Security

https://orcid.org/0000-0002-6201-8682

“The Role of the Employees Provident Fund in Contributory Pension and Social Security” Dr. Dilip Raj Paudel

1. Background

2. Social Security and Pension System

2.1 Definition of Social Security

2.2 Global Trends

2.3 Contributory vs. Non-Contributory Pension Systems

Comparison of Contributory and Non-contributory

3. Social Security and Pension System in Nepal

a) Non-Contributory Social Security Schemes

b) Contributory Social Security Schemes

3.1 Social Security

Details of recipients of social security allowances by target group, rate, and total number

a) Government of Nepal, Province Government, and Local Governments

b) Employee's Provident Fund (EPF)

c) Citizen Investment Trust

d) Social Security Fund

e) Health Insurance Board

a) Non-Contributory Pension for Government Employees

b) Contributory Pension for Government Employees

c) Contributory Social Security for the Private Sector

4. Role of Employee Provident Fund

4.1 Provident Fund Scheme:

a) Employees who must be mandatorily affiliated with the Provident Fund

b) Employees who can voluntarily affiliate with the Provident Fund

4.2 Pension Fund Scheme:

a) Employees who must be mandatorily affiliated with the Pension Fund

b) Employees who can be affiliated with the fund by policy decision, or law and agreement

5. Challenges

5.1 Scope of the Informal Sector

5.2 Imbalance between Contribution Rates and Benefits

5.3 Inflation and Demographic Changes

5.5 Investment Risk: The challenge of investing collected funds in a secure yet profitable manner. Questions about transparency in investment management.

5.7 Policy Ambiguity: Lack of coordination among various bodies.

6. Prospects for Reform and Policy Recommendations

6.1 Expanding Coverage to the Informal Sector

6.2 Institutional and Policy Integration

6.3 Technical Improvements

6.4 Improving Investment Strategies

6.5 Measures to Ensure Long-Term Sustainability

7. Conclusion

बैंक तथा वित्तीय संस्था सम्बन्धी ऐन (बाफिया) २०७३ को संशोधन प्रस्तावले अवकाश कोषलाई पर्न सक्ने प्रभाब

नेतृत्व कमजोर हुँदा अनुयायीमा पर्ने प्रभाव: एक विश्लेषण

१. मनोबलमा गिरावट

२. दिशाहीनता र रणनीतिक असमझदारी

३. भरोसा र पारदर्शिताको संकट

४. सामूहिक तालमेलमा समस्या

५. योग्य जनशक्तिको पलायन

निष्कर्ष

सुशासनका लागि सक्षम र उत्तरदायी नेतृत्व

Nepal’s Budget 2082/83 BS (FY 2025/26): A Critical Review on Social Protection, Governance, Digital Transition, and Pension System

1. Introduction

2. Fiscal Overview of Budget 2082/83

3. Social Protection Expenditure

4. Pension System Focus

5. Health and Insurance Provisions

6. Governance and Public Administration

7. Digital Transformation and Innovation

8. Comparative Budget Trends (Past and Present)

9. Policy Implications and Recommendations

10. Conclusion

References

Current Scenario of Pension System in Nepal and Its Reform for Adequacy, Sustainability, and Coverage: A Comparative Analysis within the Asian Region

The Role of Employees' Provident Fund (EPF) in Provident Fund, Pension Fund, and Social Security Benefits

The Role of Employees' Provident Fund (EPF) in Provident Fund, Pension Fund, and Social Security Benefits.

1. Introduction

2. Historical Development of the Employees' Provident Fund (EPF)

3. EPF's Role in Pension Management

4. EPF and Social Security Benefits

5. Comparative Analysis with Other Pension and Social Security Systems

6. Challenges Facing EPF

7. Future Directions and Reforms

8. Conclusion

Investment Opportunity, Risk-Return, and Portfolio Management in the Nepalese Economy

Pension System in Nepal

Abstract

Nepal’s Budget 2082/83 BS (FY 2025/26): A Critical Review on Social Protection, Governance, Digital Transition, and Pension System

a. Provident Fund , Pension , Gratuity, Sickness and medical treatment , Work Injury , Maternity , Work Accidents and Survivor Benefits

a. Provident Fund , Pension , Gratuity, Sickness and medical treatment , Work Injury , Maternity , Work Accidents and Survivor Benefits