The government’s pension expenditure for public servants is expected to more than double over the next five years, reaching nearly Tk 51,000 crore as the new pay scale is fully implemented, according to a report by the National Pay Commission. The rapid increase in pension payments, driven by rising numbers of retirees and enhanced salary scales, is raising concerns about long-term fiscal sustainability.
The commission highlighted that pension spending stood at approximately Tk 24,670 crore annually under the 2015 pay scale, based on Tk 12,335 crore disbursed during the first half of the last fiscal year. With the new pay scale, annual pension costs are projected to rise to Tk 34,629 crore initially and then escalate further to Tk 50,684 crore by the fiscal year 2029-30, coinciding with an increase in pensioners from 916,000 in FY2025-26 to an estimated 1,045,000 by FY2029-30.
This growth in pension liabilities is attributed not only to salary adjustments but also to increased life expectancy, with retirees now drawing pensions for two decades or more on average. The commission warned that continuing on the current path would place an “unbearable fiscal burden” on government finances, urging the implementation of sustainable pension reforms.
Bangladesh currently operates an unfunded defined benefit pension system for government employees, where retirees receive monthly payments amounting to 90 percent of their last basic salary plus post-retirement leave benefits. This entire liability is funded directly from the government’s revenue budget, with employees making no contributions during their service period. A similar arrangement applies to about 90 autonomous and state-owned entities, including 55 public universities, where the government also covers pension costs through grants.
Noting global trends, the commission observed that many high-income countries—including the United States, the United Kingdom, and Australia—and neighboring South Asian nations have shifted toward defined contribution (DC) pension schemes. Under these systems, both employees and employers contribute funds that are invested in low-risk assets such as government securities, equities, and mutual funds. Pension payments are drawn from the accumulated fund and its returns, reducing the direct fiscal burden on governments.
Examples cited include Sri Lanka, where pension contributions are split as 8 percent from employees and 12 percent from the government; Pakistan with 10 percent employee and 12 percent government shares; India with employees contributing 10 percent and the government 12 to 14 percent; and Australia, which mandates a minimum 12 percent contribution and manages one of the world’s largest pension asset pools, totaling AUD 4.33 trillion in 2025.
The report suggested that adopting a DC model could not only relieve pressure on the national budget but also bolster domestic capital markets, given the substantial long-term investment funds generated through such schemes. It proposed establishing mandatory DC pension plans for new government employees and workers in autonomous bodies, with combined payroll deductions and matching government contributions managed by a dedicated National Pension Authority fund. This fund would be invested in a diversified portfolio aimed at generating sustainable returns.
The commission acknowledged that a previous attempt to introduce a DC scheme under the Universal Pension Management Act of 2023 faced resistance and was limited in scope, excluding government employees and lacking sufficient stakeholder engagement. It recommended comprehensive consultations and the expansion of the National Pension Authority’s mandate to include coverage for public, autonomous, and private sector workers, with regular reviews to ensure fiscal balance and public acceptance.
Ultimately, the report underscores the urgency of reforming the current pension system to ensure its financial viability amid demographic shifts and growing fiscal demands.