General Knowledge

Contributory Social Security

Contributory social security is a system of social protection in which the beneficiary (worker/employee) and usually the employer, and sometimes the government, make regular monetary contributions into a fund, and the worker receives benefits (pension, medical care, accident compensation, maternity benefit, etc.) out of that fund. It is based on the insurance principle — benefits are earned through contributions rather than given as charity.

In Nepal, the main legal framework is the Contribution-Based Social Security Act, 2074 (2017) and the Social Security Fund (SSF) operated under the Ministry of Labour, Employment and Social Security.

Key Features

• Membership is compulsory for formal-sector workers and voluntary for self-employed/informal workers.
• Contribution is a fixed percentage of salary — currently 31% of basic salary (20% by employer, 11% by employee) for the SSF scheme.
• Benefits are linked to the amount and duration of contribution.
• The fund is managed by a tripartite body (government, employers, workers).

Importance

1. Income security in old age — provides a monthly pension after retirement, so workers do not fall into poverty.
2. Risk sharing — medical expenses, workplace accidents, disability and death are covered, reducing the financial shock on the family.
3. Dignified life — ensures dependent family members receive benefits after the earner's death.
4. Reduces burden on the state — workers save for themselves instead of depending on state welfare.
5. Labour stability and productivity — a secured worker is more motivated and less likely to change jobs.
6. Promotes formal employment — encourages registration of workers and firms.
7. Capital formation — the accumulated fund is invested in infrastructure and development.

Examples

• Nepal: Employees of banks, industries and government corporations contributing to the Social Security Fund; the Employees' Provident Fund (EPF); Citizen Investment Trust (CIT) retirement schemes; Nepal Army and Nepal Police pension funds.
• Abroad: Employees' Provident Fund Organisation (EPFO) in India; Social Security Administration (Social Security) in the USA; National Insurance in the UK.

Conclusion

Contributory social security is a self-financing, rights-based protection system that secures workers against life-cycle and workplace risks. For Nepal, expanding it to informal and migrant workers is essential to achieve universal social protection.

Citizen Investment Trust (CIT)

Establishment: CIT was established in 2047 BS (1990 AD) under the Citizen Investment Trust Act, 2047 BS, as a government-owned autonomous financial institution. It began operations in 2051 BS (1994 AD).

Objectives of the Citizen Investment Trust

1. Mobilise small and scattered savings of citizens and channel them into productive sectors of the national economy.
2. Institutionalise savings by encouraging the habit of regular saving and investment among the general public, especially those with low income.
3. Provide attractive returns to savers and investors through safe and profitable investment of collected funds.
4. Develop capital market and money market by investing in shares, debentures and securities of various companies and by acting as a market maker.
5. Provide retirement and social security benefits to employees of government, public enterprises and other organisations through retirement/pension schemes.
6. Support national development by investing in infrastructure, industry, agriculture and other priority sectors.
7. Promote self-employment and entrepreneurship by providing financial assistance and investment opportunities to citizens.
8. Manage and operate collective investment schemes (mutual funds) for the benefit of small investors.

Scope of Work of the Citizen Investment Trust

1. Saving Schemes: Operates various saving schemes such as:

   • Retirement Saving Scheme (for employees of government, public corporations, banks, etc.)
   • Special Saving Scheme
   • Citizen Saving Scheme
   • Dependent Saving Scheme
   • Marriage Saving Scheme
   • Child Education Saving Scheme
   • Monthly Saving Scheme

2. Investment Activities:

   • Invests in shares, debentures and securities of companies.
   • Provides loans and advances to industries, agriculture and service sectors.
   • Invests in government securities and fixed deposits.

3. Mutual Fund Management:

   • Operates closed-end and open-end mutual fund schemes (e.g., CIT Mutual Fund) for small investors.

4. Capital Market Operations:

   • Acts as a licensed Depository Participant (DP) and merchant banker.
   • Provides share registration, underwriting and portfolio management services.

5. Retirement/Pension Management:

   • Manages retirement funds and provides pension benefits to employees of various organisations.

6. Financial Assistance:

   • Provides loans to employees against their retirement savings.
   • Offers financial support to citizens for productive purposes.

7. Other Services:

   • Provides insurance and investment advisory services.
   • Conducts financial literacy and savings awareness programmes.

Conclusion

CIT functions as a savings and investment institution that collects small savings from citizens and invests them in productive sectors, thereby contributing to capital market development, social security and national economic growth.