Universal Pension Scheme Needs Exit Plan For Private Sector Workers

💰 In order to make the Universal Pension Scheme (UPS) more attractive, the National Pension Authority (NPA), at a recent meeting, took a few measures. These include extending the age limit for a spouse to receive a pension after the pensioner's death to 80 years from 75 and introducing an Islamic version of the UPS. However, the NPA's board of directors stopped short of deciding on a crucial proposal: allowing early withdrawal of contributions.

📊 Under the existing pension system, once someone joins a scheme, they cannot voluntarily terminate it and withdraw the accumulated money before reaching pensionable age, except in specified circumstances such as death or obtaining employment in a government or autonomous institution. The authority does, however, permit changes in the contribution rate and switching between schemes. But if a subscriber is unable to continue contributions, the accumulated funds remain locked until pensionable age.

👥 99% Of RMG Workers Uninterested: BILS Survey

One of the main objectives of introducing the UPS in 2023 was to reduce the disparity between private- and public-sector employees in terms of pension benefits. However, the response has so far been lukewarm. Persistent high inflation and job insecurity among private-sector employees have been deterring many from joining the scheme. Earlier a survey conducted by the Bangladesh Institute of Labour Studies (BILS) among RMG sector employees found that about 99 per cent of those surveyed were not interested in joining the UPS because of financial constraints, fears of job loss, concerns over uninterrupted contribution payments and the risk of losing their contributions.

• 💰 UPS launched: 2023
• 👥 RMG workers uninterested: 99% (BILS survey)
• 📜 Current rule: No voluntary early withdrawal
• 📜> Permitted: Change contribution rate, switch between schemes
• 🌏> India NPS benchmark: Partial withdrawal after 3 years, up to 4 times before age 60
• 💰> India NPS withdrawal cap: 25% of subscriber contributions

📜 Private Sector Reality: Unstable Employment

The authorities need to recognise the fact that unlike public-sector employees, private-sector workers generally do not enjoy stable employment or assured income. A worker who loses a job or faces a sudden family emergency may simply become unable to continue making monthly contributions. A pension scheme designed for such workers, therefore, needs to strike a balance between preserving long-term savings and providing some flexibility during periods of genuine financial hardship.

The BILS survey presents several recommendations to make the UPS more accessible to private-sector employees. It proposes the introduction of measures that could support workers during income shocks. These include allowing the withdrawal of funds or providing loan facilities during financial crises, temporarily suspending contributions during periods of hardship, and ensuring pension continuity even after contribution interruptions.

🌏 India's NPS Model: Partial Withdrawal Benchmark

Bangladesh can also take one or two cues from India's National Pension System (NPS), which allows subscribers to make partial withdrawals after three years of subscription. Under the current rules, partial withdrawals can be made up to four times before the age of 60, with a minimum four-year interval between successive withdrawals. The amount withdrawn is generally capped at 25 per cent of the subscriber's contributions. This structured approach — time-locked, frequency-limited and amount-capped — balances the need for financial flexibility with the long-term savings objective.

Bangladesh could consider a similar approach. Such a provision would not undermine the basic objective of the UPS. Rather, it could make the scheme more responsive to the realities of private-sector employment and encourage greater participation. A pension scheme cannot become truly universal if potential subscribers fear that a period of financial hardship could leave them unable to access the money they have saved.

🤝 Strategic Context: Financial Inclusion For Informal Sector

For Bangladesh's broader financial inclusion agenda, the UPS early withdrawal debate highlights a fundamental tension in retirement savings design: the trade-off between long-term savings discipline and short-term financial flexibility. Public-sector employees — with stable employment, assured income and existing pension benefits — can afford to lock their contributions until pensionable age. Private-sector and informal sector workers — who face employment volatility, income insecurity and frequent financial emergencies — need a pension system that recognises their reality.

The 99% disinterest rate among RMG workers should be a wake-up call for the NPA. If the UPS cannot attract the workers who need it most — the millions of private-sector and informal sector employees who have no other retirement savings — then the scheme's universality ambition remains unfulfilled. The introduction of a structured early withdrawal facility, modelled on India's NPS, would address the primary barrier to participation while preserving the scheme's core savings function.

The coming months will reveal whether the NPA acts on the early withdrawal proposal — or whether the UPS continues to struggle with subscriber acquisition among the private-sector workforce that represents the vast majority of Bangladesh's labour market.