- Thursday, 9 April 2026
Lok Nath Bhusal
Social security ensures a welfare state by protecting citizens from economic and social shocks and vulnerabilities. As a redistributive mechanism, social security also contributes to reducing inequality. It stands as one of the most significant measures in terms of coverage, costly in terms of public fiscal burden and long-standing social protection programmes. Although politically motivated by design, this categorically targeted allowance reflects Nepal’s commitment to a welfare state. Over time, the old age allowance has expanded in both coverage (about 2 million beneficiaries) and fiscal allocation (about Rs. 90 billion annually). With the rise in both old-age population and fiscal burden, it has become a pertinent issue to debate whether it can be remodelled and made more pro-poor, need-based, and cost-friendly.
With its welfare orientation, the Constitution of Nepal guarantees social security as a fundamental right. Article 43 explicitly states that senior citizens, economically weak, and vulnerable groups have the right to social security. The Social Security Act, 2017, and other related regulations provide a legal framework for implementation. These laws mandate federal, provincial, and local governments to ensure the effective design and delivery of social security benefits, including old-age allowances. Consequently, several local governments have topped up these allowances with their cash or kind contributions.
Amount and eligibility
The old age allowance has evolved significantly in terms of amount and eligibility since its inception in 1995. Introduced with only Rs. 100 per month to citizens 75 years and above, the allowance was increased to Rs. 500 per month in the early 2000s. In the 2010s, it was further increased to Rs. 2,000 to 3,000 per month. In recent years, it has been raised to Rs. 4,000 per month. The eligibility criteria were set at 75 years initially. It was revised to 70 years later and further reduced to 68 years for a brief period. Now, it has been revised to 70 years. There are also special provisions for the Dalit and Karlali citizens, with an eligible age set at 60 years.
While the federal government formulates related policy and allocates the required budget, the local governments identify, register the beneficiaries and distribute the allowances. Payments were made in cash for the past several years. They are done now through the bank and digital systems to reduce possible irregularities. Although it has not been targeted at the poor, the old-age allowance has contributed to various aspects of Nepal’s socio-economic development. Some research evidence shows that it helps reduce poverty. Many low-income elderly citizens rely on this for their livelihoods, even though Rs. 48,000 per annum is clearly less than the above poverty line income of Rs. 72, 908 determined by the Nepal Living Standards Survey (NLSS) survey.
Old age allowance has also contributed to social inclusion as it enhances dignity and reduces marginalisation of elderly people, particularly those without sufficient income, family support and savings. The allowance has also boosted family food security and thereby reduced healthcare expenses. Since a large proportion of the allowance beneficiaries are elderly women and widows, it has also contributed to gender equity. It has also contributed to the local economy as cash is spent across the country.
Despite these contributions, the allowance programme faces several challenges. First, with a growing elderly population, the fiscal burden on public finances is increasing. Social security expenditure accounts for about 15 per cent of the annual federal budget, and nearly half of this is spent on old age allowances. Without significantly increasing revenue, this burden is not fiscally sustainable. Second, since it is only categorically targeted, the allowance is largely universal. Both non-poor and poor get it. Since the non-poor live longer, they are capturing most of the benefits. Pro-poor targeting can ensure efficient resource allocation, but this risks programme termination.
Third, there are still some administrative inefficiencies, such as delays in payments, errors in beneficiary lists and limited monitoring mechanisms. National ID has become very instrumental in reducing some of these inefficiencies. Further, Rs. 4,000 a month is clearly not adequate to cover even the minimum costs of living. For the non-poor, its marginal utility is insignificant. Also, due to the predominance of informal sector workers, people lack contributory pension systems. This demands for non-contributory social security benefits during old age.
Reforms
These challenges demand policy debate and meaningful reforms in the old-age allowance. Considering the contradictory goals of increasing coverage and reducing fiscal burden, various policy measures can be applied. First is to raise the eligibility age to ensure fiscal sustainability. This is quite rational because many senior citizens are found to be working and earning until 75 years. Therefore, why not set the eligible age at 75 years? This will significantly reduce the number of beneficiaries and thereby the fiscal burden. It is good to note here that the recently publicised Good Governance Roadmap, 2082, has suggested raising the eligibility age to 75 years to reduce fiscal pressure. This truly reflects our increased life expectancy. Many innocently suggest going for means-testing to target the cash transfers only to those identified as poor, but this is a hugely costly, divisive, stigmatising and cumbersome approach.
Nepal’s poor household identification scheme has largely become unsuccessful. For long-term fiscal sustainability, there is a need to expand contributory pension schemes through increasing social security fund affiliation of workers (now 28.82 million), both in the formal and informal sectors, as well as the self-employed. Strengthening digital governance systems and integrating the allowance with broader social protection policies are equally useful measures to carry out required reforms. Taking into account the crucial role of old age allowance in furthering various development outcomes, there is a pertinent need to expand coverage without further cost to our treasury through the application of the above-stated multidimensional measures.
(Dr. Bhusal writes on developmental issues.)
