Major pension system overhaul: Pensions to be suspended upon re-employment

The President announced on Wednesday a major impending change to the pension system, which will see the suspension of pension benefits for retirees who re-enter public service employment.

In a post on the President's X account, it was stated that necessary amendments to existing laws and regulations are currently underway. These changes aim to standardize pension benefits received by all public service retirees.

A key component of this reform involves suspending pension payments for the duration a retired individual is re-employed in public service. The President clarified, “The regulations will be amended to require that a person who is receiving a pension benefit upon retirement from a public service returns to a public service and the benefit is suspended during his employment.”

This reform comes amidst long-standing warnings from foreign agencies regarding Maldives' increasing debt and the risk of default. Both major international rating agencies have downgraded the Maldives’ credit rating due to these concerns; Moody’s to Caa2 and Fitch to CC on August 29.

Foreign financial institutions have consistently advised Maldives to reform the "double pension" and subsidy burden on the state, and to reduce overall government spending, as critical steps toward improving the economic situation.

The government has initiated efforts to align the pension system with these recommendations, and this year's budget included subsidy reforms. However, these measures have yet to be fully implemented.

In November of last year, President Muizzu's administration initially decided to reduce the monthly allowance paid to new retirees from "double pension" agencies as part of pension system reform. Government agencies were notified of this change.

However, the President reversed this decision shortly after the announcement, citing employee concerns regarding the pension changes.

The Finance Ministry has previously indicated that the current pension reform efforts are not proving to be cost-effective. This year, expenditures on retirement payments and pensions have already surpassed last year's figures. With four months remaining in the year, 79 percent of the total budgeted amount for these payments has already been spent.

While this year's budget was drafted with revisions to subsidies intended to cut spending, these reforms were not introduced. The allocated MVR 1.86 billion for subsidies has been exceeded, with current expenditure reaching MVR 2.05 billion, a 10 percent increase over the budget.

The President's decision not to alter the subsidy was reportedly based on a desire to avoid saving money by reducing benefits provided to the public to ease their financial burdens.