Govt pension spending to double to Tk 51,000cr in 5yrs

Pay commission warns of ‘unbearable fiscal burden’

The government’s pension expenditure for public servants is projected to double to nearly Tk 51,000 crore over the next five years after the new pay scale is fully implemented, according to a report by the National Pay Commission.

This expense will eventually create an “unbearable fiscal burden”, the commission warned.

It said the number of pensioners grew by around 4.5 percent annually on an average in recent years. Under the 2015 scale, Tk 12,335 crore was spent on pensions in the first six months of the last fiscal year, which works out to roughly Tk 24,670 crore in a year. 

Once the new pay scale takes full effect, the annual figure will rise to Tk 34,629 crore. 

The number of pensioners, 9.16 lakh in FY2025-26, is expected to reach 10.45 lakh by FY2029-30, pushing pension spending to Tk 50,684 crore.

“Paying pension claims at an increasing rate is placing growing financial pressure on the national budget, and there is a strong possibility that in the long run, this specific strain will reach an unbearable level,” the commission said, stressing the need for sustainable reforms. 

It also attributed the rising cost to longer life expectancy, with retirees now drawing pensions for 20 years or more.

Bangladesh runs a completely unfunded “Defined Benefit” scheme for government employees. They contribute nothing during service, and the entire liability is met from the government’s revenue fund. 

On retirement, they receive a monthly payout based on 90 percent of their last basic salary, along with post-retirement leave benefits. A similar system covers nearly 90 autonomous and state-owned entities, including 55 public universities, where pension costs are largely met through government grants-in-aid. 

The commission said sustaining this system will become virtually impossible in the coming years.

Most high-income nations, including the US, the UK and Australia, as well as Bangladesh’s South Asian neighbours, have moved to a Defined Contribution (DC) system, the report noted. 

Under it, contributions from employees and employers build up a fund that is invested in low-risk assets such as government securities, equities and mutual funds. Pensions are paid from the fund and its returns.

Sri Lanka’s scheme has an 8 percent employee and 12 percent government contribution. In Pakistan the shares are 10 percent and 12 percent, while in India employees contribute 10 percent and the government 12-14 percent. Australia requires a contribution of at least 12 percent of salary, and its pension asset pool stood at AUD 4.33 trillion in 2025, one of the largest in the world.

With government employees serving 30 years or more on average, the commission argued that a DC model could turn pension funds into a major driver of domestic capital markets and growth. 

In a country of 170 million people, bringing government, autonomous, and private sector workers under one DC system would mobilise huge long-term investment funds and strengthen the social safety net.

The report noted that an earlier attempt to introduce a DC scheme for new staff at public universities and autonomous bodies, under the Universal Pension Management Act, 2023, met resistance. Government employees were excluded and stakeholders were not adequately consulted.

The commission recommended that the National Pension Authority launch separate DC schemes for new government employees and autonomous body workers after thorough stakeholder consultations. 

It proposed a mandatory scheme for all new government hires, combining payroll deductions with matching state contributions in a dedicated pension fund. 

The fund would be invested in secure, high-yield assets such as government securities, equities and mutual funds to generate self-sustaining returns. Periodic reviews would help keep the schemes publicly acceptable and fiscally balanced.

It also recommended expanding the authority’s mandate so it can extend funded pension coverage across the public, autonomous and private sectors.