Making Social Security Scheme work

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The contribution-based Social Security Scheme was launched by the incumbent government with much fanfare on November 27 in the last year. The scheme aims to cover nearly 3.5 million formal private sector workers by making them and their employers contribute to a common fund-Social Security Fund (SSF).

According to it, such workers will have to mandatorily contribute 11 percent of their basic salary to the fund, while the employers are required to contribute another 20 percent of the employees’ basic salary. Once these contributions are made, employees will be entitled to compensation in case they lose a job or cannot attend the workplace because of pregnancy, illness or accident.  Of the total fund collected, the SSF, as per the scheme, will allocate 3.22 percent for medical treatment, health and maternity security, and 4.52 percent for accident and disability security. In the same vein, it will allocate 0.87 percent for dependent family security and 91.3 percent for old age security.

The introduction of such a scheme is undoubtedly a landmark move taken towards protecting the workers nationwide and promising them a comprehensive welfare package. Apart from the workers, their spouse, children, and parents can also enjoy the facilities if the contributors die. Deceased worker’s spouse will get a monthly pension equivalent to 60 percent of the workers’ basic salary for a lifetime. In case a worker dies after paying the premium, the children will get 40 percent of the parent’s monthly salary till the age of 8 as educational assistance. If the deceased worker does not have a spouse or children, the parents will get 60 percent of the worker’s monthly salary until they survive.

The Ministry Labour, Employment and Social Security says that the scheme is gravitated towards putting an end to all the financial insecurity for the present and uncertainty for the future faced by private sector workers.

In fact, the private sector and labor rights organizations have also lauded the scheme stating that it is the much-needed step to enhance the norms and value of the labor sector. They believe the very idea can go a long way not only in making the workforce happier and satisfied but also in raising the products and services at par with the international standard.

Major Hurdles

Despite all this, the picture of the implementation of the Social Security Scheme is bleak.   The low number of private firms registering with the SSF nationwide augurs well this fact.

Though there are some 9,00,000 business entities and service providers across the country, only 1,620 of them have registered with the SSF till the third week of February. The nationwide deadline for registration under the scheme will end on April 28 this year. The prevent laws have made it mandatory for all formal private sectors to register to ensure their workers. Failing to do so can deprive them of government services. The officials with the SSF themselves are admitting that the scheme has been unable to attract enough number of private firms.

It is speculated that such firms are shying away from getting registered under the scheme fearing financial burden. So far they have been making partial provision towards potential gratuity liability. But now they are required to fork out cash and deposit in the social security fund.

Similarly, employees earning a tremendous amount of money are not being enrolled under the same as they might be apprehensive about the need to pay a big chunk of their incomes to the scheme.

Both the private sector employers and their employees are harboring a big confusion about the provisions of the scheme. For many years, the mandatory one percent cut in the paycheck of the private sector employees to deposit in the social security fund has been in place. Nevertheless, the deposited amount of many employees is being vanished. It is because of the lack of clarity about the functions of the fund and the absence of well-defined rules.

Effectively implementing the scheme will, of course, not be a cakewalk. It is all the more so in a country like Nepal where both the government and private sector frequently show wilful dereliction of duty. Successive governments over the years have failed to implement any schemes in a way that was originally intended. Similarly, the private sector seems more bent towards neutering government schemes/programs rather than cooperating with state officials for their practical materialization.

Such being the reality, specific prudent measures must be adopted without much ado for making the social security scheme work.  

Way Forward

First, the government shall invest in massively educating the concerned people on the significance of the scheme by removing the inconsistencies and lack of clarity surrounding the same. Second, it has to find and hire global fund managers with a proven track record in managing billion dollar funds on an incentive fee structure basis. Third, the government and private sector must work together to effectively materialized the scheme by rising above the occasion.  After all, the scheme will be a success only if it offers real benefits to the citizens, not just hollow lip service.

By: Santosh Giri:

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