In an effort to address growing concerns about the pension system in the Maldives, the Ministry of Finance has announced a significant change for employees under private retirement schemes. Starting in January 2024, monthly allowances for newly retired individuals participating in these schemes will be discontinued. This decision is aimed at reducing the disparity between civil servants and employees in the private sector, creating a more equitable retirement plan for all.
Objective of the Reform
The main goal of the reform is to create a more balanced and fair pension system. The existing structure provides a basic pension, which is a lifetime monthly payment based on an employee’s length of service. However, there have been notable discrepancies in the benefits received by civil servants compared to private-sector employees, with some individuals receiving multiple pensions. The Ministry’s new policy seeks to address these inequalities and harmonize the pension system across both sectors.
The 2015 Audit Report
The decision follows recommendations made in a 2015 special audit report by the Auditor General. The report highlighted the issue of "double pensions" and suggested that eliminating this practice could reduce inefficiencies in the state pension system. Additionally, the Auditor General warned that without reform, the cost of state pensions could rise dramatically, potentially reaching MVR 4.3 billion by 2030. This stark projection has pushed the government to take proactive steps to avoid further financial strain.
In line with the recommendations, a letter from Moosa Zameer, the Finance Minister, instructed all state agencies to cease the monthly allowance payments to employees who participate in private retirement schemes. The Ministry noted that these state-funded schemes, which provide financial benefits that are not available to other citizens, have created an unfair advantage for some individuals. The government hopes that removing these allowances will create a more level playing field for all retirees.
Growing Costs of Pension Schemes
The financial burden of pension schemes has been steadily increasing in recent years. At present, there are 13 state agencies administering separate pension programs. These schemes have become more costly over time. In the previous year, the government allocated MVR 46.1 million for lump-sum pension payments, while the budget for this year was MVR 45.2 million. The proposed budget for 2024 is MVR 266 million, with projections for further growth to MVR 272 million by 2025. This trend has raised concerns about the long-term sustainability of the system.
Historically, retirement pension schemes were fully state-funded with no contributions from employees. In 2009, the government introduced a new pension scheme designed to provide coverage for all Maldivians, with employees contributing to their own retirement savings. However, the older, fully state-funded pension schemes remain active, adding to the financial burden on the government. The Finance Ministry’s latest move is part of an ongoing effort to streamline these systems and make them more sustainable in the long run.
