Prime Minister KP Sharama Oli formally launched a new contribution-based social security scheme today. It provides health, accident and maternity coverage to workers employed in the private sector. Workers will also get a lifetime pension after retirement. The scheme is in line with Contribution-based Social Security Regulation.
To enroll into the scheme, a sum equivalent to 31% of a worker’s basic monthly salary needs to be deposited in Social Security Fund (SSF). 11% will come directly from the worker’s basic salary and 20% will be contributed by the employer. This is a significant step in terms of financial and social security of workers and will be a win-win scheme for both workers and their employers. It is step toward workers security as well as creating an investor-friendly workplace environment.
Here are some of the features:
- Enrolled workers will get a unique social security number, which remains unchanged even if they change their job.
- The fund has four types of social security policy: health and maternity security, dependent family security, accident and disability security, and old age pension security.
- They must contribute to the fund for at least six months to avail medical insurance, which covers doctor’s fee, hospital charges, medical test fees, and travel expenses among others.
- They must contribute to the fund regularly for at least 12 months (in the last 18 months) to receive health and maternity coverage. Health coverage is limited to NRs100,000 annually. Maternity coverage is limited to one month of extra salary.
- Workers are getting 12 days of annual leave. If they have to take leave more than that, then SSF will give them 60% of minimum salary
- Pregnant worker can get 60 days leave. SSF will give 60% of minimum salary if she has to take leave more than that (but not in excess of NRs25,000).
- They will get financial support in the case of workplace accidents and disabilities.
- They must contribute to the fund for at least two years to ensure that all expenses related to occupational diseases are covered.
- For non-workplace accidents, a maximum coverage of up to NRs700,000 can be availed.
- For those who cannot return back to work after accident, the SSF will provide 60% of minimum salary until they report back to work.
- They are eligible for pension 15 years after they start regular contribution to the fund (and after 60 years of age).
- Workers who have worked less than 15 years can withdraw the deposited money after termination of employment
- Workers who have worked at least 15 years will get monthly pension, which is equivalent to the sum of worker's deposit and profit earned by SSF from its investment divided by 180. If workers retire after 20 years of employment and contribution to the fund, then they will divide it is by 240.
- If a worker dies, then the family members can receive monthly pension equivalent to 60% of the worker’s basic salary in the last job. The worker’s children will receive 40% of parent’s monthly salary to cover educational expenses up to the age of 18. If the worker doesn’t have spouse or children, then his or her parents will get 60% of monthly salary as pension.
As per the plan as of now, of the total SSF, 3.22% will be allocated for medical treatment, health and maternity security; 4.52% for accident and disability coverage; 0.87% for dependent's family; and 91.39% for old age security. Currently, SSF has NRs20 billion deposited by levying one percent social security tax on basic salary of all private sector employees. There are an estimated 3.5 million workers currently. The minimum wage as of FY2018 is NRs13,450, of which NRs8455 is basic salary and NRs.4995 is allowance.
It is a good social security scheme whose groundwork started almost a decade ago. The big question now is how enrollment and fund will be managed and operated transparently. A committee headed by the secretary of Ministry of Labour, Employment and Social Security along with representatives from NRB (deputy governor), finance ministry, law and justice ministry, and cooperatives and poverty alleviation ministry will manage the fund. The executive committee will have three representatives each from trade unions and employers. There will be an executive director at the SSF. If politics is not kept away from SSF, then there is scope for mismanagement of funds (like pressure from MOF to invest in certain projects it deems necessary to support the government's plan).
Independent and transparent management of fund is quintessential to its operational success and for it to earn profits from the investments. Higher the profits from investments, higher will be the payments to workers enrolled in the scheme. If not, then this is likely to increase fiscal burden of the federal government.
Another question is how is the SSF going to encourage informal sector firms to enroll in the program (which in a way will force them to operate formally). There are about 0.5 million workers in the formal sector. Monthly contribution from them will be about NRs2.5 billion.