Demographic shift could coerce pension fund

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NPPF: With the declining fertility coupled with the consistent increase in life expectancy, the pension board is anticipating a major challenge from the demographic shift in the future.

The National Statistics Bureau (NSB) expects the number of older persons in the population to double from 29,745 in 2005 to 58,110 by 2030. However, the working population is projected to grow at 10 percent in the same period.

This means that number of people retiring from service would double while those contributing to the fund would increase marginally. The fertility rate as per the NSB population projection is projected to decline
below 1.8 percent after 2025, far below the international replacement level of 2.1 percent. At the same time, Bhutan had witnessed decreasing trends in mortality from improved health care.

This calls for intimidation on the sustainability of pension funds.

The National Pension and Provident Fund (NPPF) is therefore planning to invest in debt instruments like bonds, treasury bills and equity investments in state owned enterprises in the next five years, going by its annual report.

The report stated that a percent increase on the rate of return could push the pension sustainability by more than a year.

For now, the NPPF hold excess fund, if kept idle in the banks, would earn less interest.

After having invested more than Nu 619M in the Dagachhu Hydropower project, the NPPF will be exploring other investment avenues like the Nikachu, Bunakha and Kholongchhu hydropower projects.

The report states that it is useful for making investment decisions in order to project expected gains into the future. Last year, NPPF achieved a “record high return” on investments at 8.50 percent compared to its last 10-year average of 6.58 percent per annum. But in real terms, adjusting for inflation the rate of return comes out to 1.88 percent.

The report highlights that while minimum cash holding and short-term deposits kept the company’s cash flow afloat, long-term high returns investment assured sustainability.

Corporate loans and other loans to members combined constitute about half the overall investment portfolio (Nu 8.55B) and NPPF’s holding of government and corporate bonds doubled to 22 percent last year.

Investment in equity shares, as of last year reached Nu 1.29B. NPPF has subscribed to Nu 4.18B worth of corporate and government bond. NPPF had also made special arrangement with Bhutan Development Bank to invest in long term fixed deposit worth Nu 400 M at the interest rate of 8.5 percent payable half yearly for two year since 2013. The pension board have also invested Nu 300M so far and parked the remaining deposits in the next financial year.

NPPF, by virtue of being the largest real estate developer in the country has collected Nu 51.7M from rental income alone.

The company’s fund size grew by 17 percent from Nu 17.47B to Nu 20.46B last year, attributed to increased members contributions. However, less than 15 percent of the working population makes pension contribution, which is almost equivalent to entire population in Thimphu.

NPPF managed to enhance its general reserves by about Nu 94M taking its reserves to Nu 192M. The pension board claims that it could resist Nu 94M worth of bad loans comfortably.

There are 51,333 registered members, which includes civil servants, corporate employees, employees of state-owned- enterprises and members of the Armed Forces.

Last year, NPPF received a total of Nu 1.44B as pension contributions and Nu 709.52M as provident fund contributions. A total of Nu 252.93M was paid out as pension benefits and Nu 150.20M as provident fund refund to its retirees.

Tshering Dorji

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