Brunei: Changes to the state pension system

Employer Action Code: Act

The government has announced that it will launch a new National Pension Scheme (SPK) in 2023 to replace the existing Employees' Trust Fund (TAP) and Supplemental Contributory Pension (SCP) Scheme, with some grandfathering for older members. Changes include eliminating the earnings cap on employer and employee contributions, extending participation to informal workers and the self-employed, adding increased flexibility on the withdrawal of funds and introducing a lifetime annuity payout. There will be no change to the basic flat-rate social security retirement benefit, which is provided under Brunei’s universal Old Age and Disability Pension Act.

Key details

The SPK will be made up of a retirement account funded by employers and a member account funded by employees. TAP/SCP members under age 50 as of the SPK launch date will be automatically enrolled; those age 50 to 59 will have the option to join.

Retirement account:

• Employer contribution rates, based on uncapped monthly earnings, will be 8.5% for employees earning over 2,800 Brunei dollars (B$) (same contribution rate as in current TAP/SCP for all employees, but a pay ceiling applies for SCP contributions); 9.5% for those earning B$1,500.01 to B$2,800; 10.5% for those earning B$500.01 to B$1,500; and a flat B$57.50 for those earning B$500 or less.
• At age 60, a lifetime annuity will be payable for claimants meeting eligibility criteria (to be determined), with the benefit amount based on years of insured employment, average covered earnings and other factors, such as the targeted income replacement rate, inflation, estimated annual household expenditure and productivity (the calculation details are yet to be released).
• Survivor benefits will be payable, for death before or after retirement, based on the deceased member’s benefit entitlement.  

Member account:

• The employee contribution rate will be 8.5% of uncapped earnings. Different rates will apply for the self-employed.
• Members will be able to withdraw 30% of their account balance at age 45, 50 or 55, and 100% at age 60; members age 40 and above will be able to withdraw 50% of their account balance to buy, build, repair or renovate a house.
• The account balance will be payable as a lump sum — at age 60 or in the event of permanent disability, terminal illness or death.  

Employer implications

The existing pension system is not considered to provide an adequate level of income replacement in retirement for members, due in part to the low earnings ceiling on SCP contributions and the fixed-term payout of SCP benefits. This is despite the fact that Brunei does not levy a personal income tax, so benefits are received tax-free. Around 25% of companies surveyed in Brunei offer supplemental retirement benefits, some of which are coordinated with TAP. Employers in Brunei may want to review their current benefit offers in light of the new pension system as further details are announced.