Making a mess of social securityEmployers and employees rightly do not trust the new Social Security Fund.
In November 2018, the government launched the contribution-based workers' social security scheme amidst an uncharacteristically pompous ceremony and fanfare. At the expense of the taxpayers' money, life-sized portraits of Prime Minister KP Sharma Oli as the harbinger of this 'new era' for Nepal's labour welfare were hung on lampposts along all major roads in the Kathmandu Valley. In his inaugural speech, the prime minister had promised that workers of all ages and categories would be included in the scheme and no one would be excluded, guaranteeing financial security to all. But his tall promises apparently lacked the required legal, institutional and operational structures to translate them into action. As the result, two-and-a-half years down the line, the Social Security Fund (SSF), a dedicated public institution to administer the entire gamut of schemes, is still scrambling to operationalise the system. It is now embroiled in a complete mess.
The natural focus of the new endeavour as initially articulated should have been to include workers thus far excluded from the social security net, primarily from informal, self-employed and semi-unorganised sectors. The majority of agricultural workers, 67 percent of the country's total workforce, were expected to benefit from it. But this was not to be. The Fund administration seems least bothered by this need to increase inclusion across the spectrum. It is preoccupied with the idea of whipping the relatively more disciplined and organised firms in the private sector. The Fund's obsession, first to coerce the sectors like banking and insurance—among a few sectors that have arguably providing best managed financial security for their employees to enlist in the scheme—exhibits its sheer lack of priority and ad-hoc approach.
It has had obvious repercussions. For example, the financial sector of the country now has become restive as their employees, particularly of the privately owned banks, are in protest against the Fund's instructions to compulsorily enlist in the Fund's schemes by the end of the current fiscal year (July 15). The SSF directives have threatened even to cancel the license of the private firms failing to comply. A cumulative impact of the government's hammering approach, massive information asymmetry and pervasive sense of being worse-off after enlistment has allegedly led many bank employees to quit their job in fear of risking their already accumulated sum of perks, pensions and facilities.
Politics creeps in
It is not surprising that the General Federation of Nepalese Trade Unions (GEFONT), affiliated with the ruling CPN-UML has derided the protesting employees and unions supporting their cause. In a press conference organised last week for the purpose, GEFONT alleged the owners of the banks to have instigated their employees to protest against the 'Fund's bullying' so that the former could differ or evade their arrear liability that runs in millions as part of their 20 percent equivalent contribution of the employees' salary to the SSF. The remaining 11 out of 31 percent is deducted from the workers' salary. The collected fund would be allocated for medical purposes (3.22 percent), accident and disability insurance (4.52 percent), dependent family security (0.87 percent) and for old age security (91.39 percent).
There may be some merit in GEFONT's allegation, but some genuine concerns of the bank employees cannot be ignored. Among several concerns and confusion, fear of losing the already 'matured' gratuity, in particular, looms large among them who have served for a substantial number of years. As a rule of thumb, an employee is entitled to two months per year equivalent of their salary, whenever chose to quit. There is no clear provision as to what happens to this benefit after the worker joined the Fund scheme. The provision in the 'Contribution-based Social Security Act 2017' that requires maturity of 180 days since enlistment for inheritance to be effective has bothered many. If a worker died in the interim, the nominated beneficiary is feared to be deprived of this right. The workers who had joined earlier failed to use the health insurance component of the fund during the Covid-19 crisis. This sent an entirely wrong message about the modus operandi of SSF.
A press statement issued by the Fund last week tried to assuage the apprehensive lot of potential enlistees. ‘The Fund is committed to making the pension plans contributor-friendly and contextual on the basis of the evaluation of insured amount,’ the statement read. This was enough to suggest that the Fund was yet to review and put in place its own policies and operational plans to the satisfaction of its clients but was hastening to enlist with it. It certainly didn't add confidence to its stakeholders.
Besides, there are a number of far murkier issues. First, there are two large government-owned pension funds in operation; namely the Employees Provident Fund (EPF) and the Citizen Investment Trust (CIT). A large number of organised private sector entities like banks and insurance companies are already managing the pension funds for their employees in these institutions. The recent press statement from the SSF, however, claimed that employees can transfer the accumulated amount from EPF and CIT to SSF. But the SSF has not yet created a functional framework for account migration to facilitate such a process.
The government is humiliating the EPF and CIT and forcing them to surrender their clients to SSF, even if the clients are unwilling to migrate. The entire strategy of the government is not only encouraging the SSF for cannibalism, but creating unnecessary rivalry and tension among the government-owned service providers themselves. The most ideal approach to SSF would have been to focus first on the potential clients so far not captured by any other social security service provider.
Moreover, the trust deficit of the stakeholders with SSF appears to be the main bottleneck. Some provisions in the related laws, like how the government can liquidate the Fund at its will, are proving to be counterproductive. The overall performance of the SSF despite blatant use of state power to promote its business has remained largely unimpressive, to say the least. The Fund has collected Rs6.55 billion from 14,621 employers and 253,530 contributors. Therefore, the governance, performance and trust issues surrounding the SSF first need to be addressed, over resorting to coercion to subscribe to its security schemes.