Pension trap

The Government has decided to suspend a Cabinet decision to calculate pensions of retiring public sector employees based on pending salary increases leading up to 2020 as officials try to grapple with the financial fallout of having to pay an estimated 10,000 people set to retire in the next three years. 

Sri Lanka needs to make strong reforms linked to the Government’s fiscal policy to encourage savings and improve inclusion of more people in pension systems as the country faces the challenge of a rapidly ageing population.

In Sri Lanka, only 20% of older persons receive a pension from the public sector, whereas 5% receive one from the Informal Sector and a further 5% receive one from the Public Welfare Assistance Allowance (PAMA) and the Elderly Assistance Programme (EAP). Moreover, 50% of the population does not receive any form of pension.

Pensions play a vital role in society, therefore they need to be one part of a comprehensive policy on population ageing which includes not only the provision of an adequate income but also provide affordable healthcare. Fiscal reforms are necessary to provide incentives for retirement savings.

The system needs to be developed through reforms that improve sustainability and ensure future returns. Increasing coverage with regard to demographic developments will also be of great significance especially in countries which contain a large informal sector otherwise there will be no income security.

There is also a need to look into the multitier system of society, which includes an increase of the coverage of the public pension system, enhancement of private pensions for higher income groups and a basic old-age pension for everyone. Ensuring old-age income security for women is also another challenge.

In Sri Lanka only a small proportion of older persons receive a contributory pension that is adequate and it is mostly high income earners who receive it, in comparison to lower income earners. Despite the introduction of government handouts to all older people, benefit levels are typically very low, too low to serve as an income source.

Sri Lanka’s population is ageing swiftly, which will result in the 60 years and above age category of the population increasing to 19.7% by 2030. Thus ensuring that older persons in the country have a significant level of income security is of great concern. 

Declining fertility rates, increasing life expectancy and the differences in the life expectancy of both females and males will result in future changes in the structure of the population, resulting in an older, more female population. As a result the existing pension schemes in the country may be unable to provide the adequate income support for all old persons living in the country.

There are multiple widespread pension schemes in the country. However, the adequacy of the pension system depends on the lifestyle of the person receiving it.

According to recent population projections, the share of people over 60 years in Sri Lanka will rise from 9% in 2001 to 17% by 2021. In addition, Sri Lanka’s population is expected to start declining by 2031, indicating that the share of the elderly will rise even further. 

By 2051, the population over 60 years will be 29% and over 80 years 5%. This implies that increasing numbers of the elderly will become economically vulnerable, as family size further shrinks and a lower share of economically-active younger people become available to look after the needs of the elderly in society over time.

Ageing-related poverty will result from the younger generation and State services being unable to bear the costs of supporting the elderly, in terms of their basic needs – food, clothing, shelter – as well as their other needs such as health, transport and recreation. Hence, there is a threat of many more of the elderly sliding into poverty in Sri Lanka over the next few decades.