Retirement changes to tackle pension inequalities, says Finance

Ministry of Finance has announced plans to discontinue monthly allowances for newly retired employees under private retirement schemes starting January next year.

The decision aims to address inequalities in the pension system among civil servants.

The Ministry stated that the basic pension system, covering all employees, provides a lifetime monthly payment based on service length. However, it noted disparities between civil servants and employees under private schemes, with some receiving double pensions.

Recommendations to harmonize the pension system have been made previously, including in a 2015 special audit report by the Auditor General, which urged the government to prevent double pensions and streamline the state pension system.

The report warned that maintaining the current system could lead to state pension costs reaching MVR 4.3 billion by 2030.

In a letter signed by National Pay Commission President and Finance Minister Moosa Zameer, agencies were instructed to cease the allowance payments for employees of state institutions with private retirement schemes. The Ministry described these schemes as inequitable since they are funded entirely by the state budget, providing benefits unavailable to other citizens.

Currently, 13 state agencies administer separate pension schemes, with expenditure on these programs increasing annually. Last year, MVR 46.1 million was spent on lump-sum pensions, while this year’s allocation stands at MVR 45.2 million. The budget estimates MVR 266 million will be spent on the schemes in 2024, rising to MVR 272 million in 2025.

A retirement pension scheme was introduced in 2009 to provide coverage for all Maldivians. Prior to this, pension schemes were funded entirely by the state without employee contributions. Although the 2009 system was expected to replace the older state-funded schemes, they remain active, contributing to increased government spending.