Fifteen years ago, the Maldives introduced its landmark Pension Act, a promise of security for the ageing, built around a seemingly sustainable contributory system. Yet today, that very system stands precariously close to collapse. The current pension model, once heralded as a modernising reform, now grapples with inefficiencies, stark inequalities, and ballooning financial obligations that threaten its very future. The question policymakers now face is not if, but when and how radical reform will arrive.
At its core, the Maldives’ pension system operates on two tracks. The first is the national pension scheme, a defined-contribution model funded by employer and employee contributions, supplemented by the state-provided basic pension for citizens aged 65 and above. Parallel to this, however, run thirteen distinct pension arrangements for institutions like the military, police, judiciary, and various independent agencies. These parallel systems often promise defined benefits without any direct contributions from employees. The result is a fragmented, inequitable landscape where public-sector retirees frequently enjoy double pensions, even as the core pension scheme struggles for financial stability.
The alarm bells have been ringing louder each year. Shujatha Haleem, CEO of the Maldives Pension Office, recently painted a stark picture before Parliament’s Public Accounts Committee. The proportion of Maldivians aged 65 and above, currently around 4 percent, is expected to jump to 7 percent by 2030. The monthly cost for basic pensions alone already exceeds MVR 100 million, with total pension-related expenditure ballooning rapidly each year. Over just the past five years, spending on double pensions surged by MVR 70 million, money that the state increasingly cannot afford.
Yet demographic shifts alone do not explain the crisis. Declining returns from pension fund investments and insufficient contributions compound the challenge. Contributions are not keeping pace with obligations, and investment returns, once the lifeblood of pension sustainability, have fallen short of expectations amid global economic volatility. Meanwhile, persistent reliance on government subsidies adds significantly to public debt exposure, effectively passing the bill to future generations.
Such structural deficiencies are hardly unique to the Maldives. Other small nations with rapidly ageing populations have faced similar crossroads. Iceland, for example, has gradually adjusted its retirement age and operates a robust multi-pillar pension system combining public, occupational, and private schemes to ensure long-term sustainability. Meanwhile, New Zealand introduced KiwiSaver, a voluntary savings programme with automatic enrolment, to boost individual retirement savings alongside its universal, tax-funded pension. Both countries recognised the need for politically challenging reforms and took early, decisive action to adapt their systems before demographic and economic pressures became overwhelming.
Yet, the Maldives faces distinct political and structural hurdles that complicate reform. Powerful constituencies, military personnel, civil servants, and judiciary officials resist any reduction in their benefits. For years, this political reality paralysed discussions around pension consolidation. As Robert Palacios, Senior Economist at the World Bank, bluntly advised at last year’s Maldives Finance Forum, ending double pensions and temporarily halting defined-benefit schemes for affluent sectors like the military or judiciary could offer immediate financial relief. But politically, this remains fraught.
Moreover, Sujatha’s careful insistence on protecting current pensioners from benefit cuts highlights another obstacle: pensions in the Maldives are viewed less as a social insurance system and more as guaranteed state obligations. There is widespread public resistance to altering pension structures, even as the financial mathematics behind these guarantees deteriorate.
This raises a broader, uncomfortable question: is the traditional promise of a state-guaranteed pension still viable for the Maldives, given its demographic and economic realities? The notion of guaranteed retirement security, unchanged since the introduction of the pension scheme in 2009, must now contend with difficult trade-offs. Adjustments such as raising the retirement age could ease financial pressures but would face immense political backlash. Similarly, adjusting pensions for inflation rather than promising generous fixed benefits is logical yet politically difficult.
The structural reforms recommended by Sujatha and echoed by Palacios, consolidating fragmented schemes under a unified administration, eliminating “double pensions,” and shifting towards greater employee contributions, represent sensible first steps. But even these measures may not suffice if they remain delayed or diluted by political compromise. The Maldives’ pension system needs more than tweaks; it requires fundamental rethinking.
Ultimately, reform is inevitable. Without it, the pension system risks failing its primary purpose: securing dignity in old age. Policymakers must confront voters with hard truths: current generosity is unsustainable, demographic change is relentless, and postponement of reforms only compounds the eventual pain.
The Maldives now stands at a crossroads familiar to many ageing nations, forced to balance difficult economic realities with the promises of past generations. The window for relatively painless reform is rapidly closing, replaced increasingly by unpalatable choices. Policymakers and citizens would do well to remember that the cost of inaction is invariably greater than the price of change.
