In 2010, the Maldives migrated from a Defined Benefit (DB) pension system to a Defined Contribution (DC) pension system, mandating all local employees across the public and private sectors to actively contribute towards their retirement savings. This shift enables individuals to take on a more active role in managing their retirement savings and planning for the future.

How Defined Contribution Pension Schemes Work

The Maldives Retirement Pension Scheme (MRPS) is a DC pension scheme. In a DC system, contributions are made into individual accounts by the employee, employer, or both, usually at a predetermined rate. Under MRPS, both the employee and employer contribute 7% of the employee’s basic salary each month, leading to a monthly pension contribution that totals 14% of the basic salary. These contributions are invested to maximise growth and preserve value, with the goal of providing a stable income at retirement.

Along with understanding how contributions work, understanding the factors that determine your income in retirement is essential for retirement planning.

What Determines Your Retirement Income?

The amount of pension savings you accumulate and the monthly benefit you receive upon reaching retirement is dependent on three important factors.

Pensionable Wage

The basic salary is the basis for pension contributions. In the case of MRPS, both the employee and employer each contribute 7% of the basic salary to MRPS each month, directly influencing the savings accumulated over time.

Service Duration

The duration over which an individual contributes to MRPS. The longer the period of contribution, the greater the accumulated savings, translating to a higher retirement benefit.

Investment Returns

The returns accumulated through the investment of pension contributions. These returns depend on the investment strategies employed by the pension asset manager and the overall investment environment. MRPS contributions are invested in a diversified portfolio to ensure growth.

By understanding how your basic salary, service duration, and investment returns contribute to your retirement income, you can plan ahead and make informed decisions to maximise your pension benefits. Through the active management of these elements, you can ensure a secure financial future that is aligned with your retirement goals.