It is becoming clearer that the objectives of the contribution-based Social Security Scheme, launched by the government amid a fanfare on November 28, will not be met. First, there is big confusion among the stakeholders, both the private sector employees and their employers, about the provisions of the scheme. It is not clear how the schemewill benefit the employees. The mandatory one percent cut in the paycheck of the private sector employees to deposit in the social security fund is in place for many years now. But due to the lack of clarity about the functions of the fund and absence of appropriate rules, the deposited amount of many employees has vanished. It is because the employers have deposited the money in collective account in the fund rather than depositing it in the personal accounts of their employees. In this regard, the level of contribution of the individuals is unclear. Because of this, it will be quite hard from them to benefit from the scheme.

Second, the scheme will add to the financial burden of the private sector institutions. For example, till now they are making partial provision towards potential gratuity liability. But now they have to dish out cash and deposit in the social security fund. The private sector employers haven’t openly raised their voices against the scheme. But they have been expressing their concerns regarding the business costs that are likely to increaseafter the implementation of the scheme. The unpragmatic social security provisions are among the reasons behind the subdued ‘doing business environment’ in the country, which is likely to worsen due to the Social Security Scheme.  

The scheme raises questions on the future of existing retirement funds like the Employee Provident Fund (EPF) and Citizens Investment Trust (CIT). Both employees and employers will be in a dire strait as they will have to choose between the retirement funds or the Social Security Scheme. Employees will face difficulties as participating in both, the existing funds and the new scheme, will decrease their disposable income significantly. The rules in the country forbid the citizens to take dual benefits from the government. In this situation, it is not clear if anyone participating in the Social Security Scheme is eligible to receive elderly allowance or not. The inconsistencies show that the government has not done enough homework to introduce the scheme. 

Addressing the concerns of the private sector is necessary. Besides, the government also needs to start a special campaign to educate stakeholders about the benefits of the scheme. The government has stated to provide a comprehensive package of welfare to over 3.5 million formal workers in the private sector. However, realising the objectives will become a distant dream if the inconsistencies and lack of clarity are not removed.

Madan Lamsal
[email protected]