Old-Age Income Insecurity: Reforming Pensions
Hema Senanayake
New employees of the government who would be recruited from January 01st 2016 onwards will have to pay for their pension, in order to receive their pension entitlements when they retire. So, it is going to be a contributory pension program. This has been proposed in the Budget 2016.
The JVP has already denounced this proposal strongly. The National Trade Union Centre (NTUC), affiliated to the JVP stressed that, “the Budget 2016 had betrayed the working class, the NTUC has vowed to thwart controversial proposal to introduce a contributory pension scheme for those joining the public sector with effect from Jan. 1 next year.” (The Island, Nov. 24, 2015).
JVP is not alone in denouncing contributory pension scheme. Former President Mahinda Rajapakse too had rejected the proposal. He said that, “I am also opposed to bringing new recruits to the government service under a contributory pension scheme from 2016 onwards. The pension is a privilege that the government servants enjoy and it should continue.” (Colombo Telegraph, Nov. 29, 2015).
Whatever the case is, let us try to understand what kind of pension program is best for the people and the country. In this series of articles through which I have been discussing about a new economic model, pension planning is one of the items on which I wanted to discuss about, because there is a strong macroeconomic reason for it. Therefore, I approach this subject from a macroeconomic perspective not as a budgetary issue of the government.
What is a pension? A pension is an arrangement that is designed to prevent old-age poverty of the work force. Any issue or problem of poverty is a problem of income redistribution or more accurately, it is a problem of the distribution of distributable income (output). Is the problem of redistribution of income falls into the category microeconomics? No it is not; rather it falls into the category of macroeconomics. Businesses, investments and investment models do fall into the category of microeconomics. This means that pension planning cannot be resolved through business or investment models or in other words there is no market based solution in order to resolve the question of income insecurity during old-age.
Usually economic theory gives us more clarity to put new policies and programs in place. Hence, let us investigate the issue of old-age poverty or income insecurity with a little bit of economic theory.