Social Security in Nepal

Nepal’s contribution based social security system replaced a scattered set of gratuity and provident fund obligations with a single 31 per cent monthly contribution, split across four protection schemes covering old age, accident and disability, medical treatment and maternity, and dependent family.

This note sets out how the system developed, which laws govern it, what employers and workers each contribute, and what benefits and conditions attach to each of the four schemes.

How Social Security Developed in Nepal

The Governing Laws

Four instruments make up the working framework:

• Contribution Based Social Security Act, 2074 (योगदानमा आधारित सामाजिक सुरक्षा ऐन, २०७४)
• Contribution Based Social Security Rules, 2075 (योगदानमा आधारित सामाजिक सुरक्षा नियमावली, २०७५)
• Social Security Scheme Operation Procedure, 2075 (सामाजिक सुरक्षा योजना सञ्चालन कार्यविधि, २०७५)
• Labour Act, 2074 and Labour Rules, 2075 (श्रम ऐन २०७४ तथा नियमावली, २०७५)

Who Contributes, and How Much

The change is easiest to see by comparing what employers and workers paid before the Fund with what they pay now.

The base for both figures is basic remuneration, not gross pay.

How the 31 Per Cent Is Split

The combined contribution is allocated across four schemes:

A fifth scheme, unemployment assistance, is provided for but has not yet been brought into operation.

Medical Treatment, Health and Maternity Protection

What the medical and health scheme covers

• Physician consultation services.
• Hospital admission and surgery charges.
• Cost of diagnosis and treatment of illness.
• Cost of medicines as billed.
• Outpatient attendance at a hospital where the contributor is not admitted.
• Home treatment by a physician or health worker where the contributor is treated at home rather than admitted.
• Fees for consultation services provided.
• Payment in lieu of leave: where a contributor is treated in hospital, or at home on a physician’s recommendation, sick leave beyond 12 days is paid for up to a further 79 days at 60 per cent of basic remuneration.

What the maternity scheme covers

• Cost of regular antenatal examination for a pregnant female contributor or the wife of a male contributor.
• Cost of maternity related surgery or treatment involving hospital admission.
• Cost of delivery in hospital.
• Post-natal treatment costs for up to six weeks after delivery, and treatment costs for the infant for up to three months.
• Payment in lieu of leave: where the contributor is a woman, maternity leave beyond 60 days is paid for up to a further 38 days at 60 per cent of basic remuneration.
• Where both husband and wife are contributors, only one of them may claim.

Limits and conditions

Payment is made into the contributor’s bank account by electronic transfer. The scheme does not pay for elective abortion, dental treatment other than following an accident, plastic or cosmetic surgery, or bariatric procedures. Benefits are not available while the Fund has suspended the scheme because a nationwide epidemic has made the cost unsustainable, and a claim already met from another scheme or reimbursed elsewhere cannot be claimed twice on the same bill.

Where a contributor is entitled to sick leave or maternity leave but cannot take it because the employer’s business has closed or the employment has otherwise ended, the Fund pays 60 per cent of basic remuneration for the leave period the employer would have had to provide. A contributor drawing a monthly pension may continue in the medical, health and maternity scheme by contributing a sum determined by the Fund out of the pension.

Benefits are paid at the rates set in the Procedure on Selection of Health Institutions by the Fund and Payment of Scheme Amounts, 2076. Where a claim is made at a rate lower than the Procedure allows, the bill is examined and paid as billed.

Accident and Disability Protection

Accident benefits

• Employment related accidents and occupational disease: the entire cost of treatment.
• Other accidents: costs up to NPR 700,000.

Conditions and limits

• Cover applies from the date contributions begin and ceases once contributions stop.
• Occupational disease benefits require two years of contribution, and may be claimed for up to two years after contributions cease.
• Occupational disease is identified by a special health review committee including a relevant specialist.
• An employment related accident must be notified to the Fund within seven days. Otherwise only treatment costs up to NPR 700,000 are payable.
• Where another insurance policy provides NPR 700,000 or more, the Fund bears nothing; where it provides less, the Fund meets the balance up to the limit.

Disability benefits

These benefits apply from the date contributions begin, and disability is determined by a health review committee including a relevant specialist.

Dependent Family Protection

• Cover applies from the date contributions begin.
• The amount accumulated in the old age protection scheme, together with the return it has earned, is refunded as a lump sum.
• The spouse, or the parents, receive a lifetime dependent pension at 60 per cent of the contributor’s basic remuneration.
• Children receive an educational grant of 40 per cent until the age of 18, extended to 21 where study continues.
• NPR 25,000 towards funeral expenses.

Where there is one child, the grant is 40 per cent of basic remuneration; where there is more than one, the amount is shared pro rata among up to two children. The extension to 21 applies where the child is continuing study and unmarried; otherwise the grant runs to 18. No age limit applies for a child who is physically or mentally incapacitated.

The benefit is lost if the dependent remarries or takes alternative employment. A dependent whose employment has ended and who has not reached pension age may apply to claim the benefit.

Old Age Protection

Retirement benefit plan

Amounts accumulating in the retirement benefit plan include:

• The 8.33 per cent allocated under the old age protection scheme.
• Amounts transferred from other funds.
• Amounts arising where remuneration exceeds the prescribed level.
• Additional voluntary contributions made for tax saving.
• Pension amounts transferred by those who joined the contribution process by the end of Ashadh 2078.
• Contributions made while remaining in regular employment after the age of 60, on a voluntary basis.

Where the amount accruing monthly to a contributor’s pension plan exceeds three times the minimum basic remuneration set by the Government of Nepal, the excess may on application be credited to the retirement benefit plan instead.

The accumulated amount and the return earned on it are paid as a lump sum when the contributor retires or the employment ends, or to the heir if the contributor dies. After three consecutive years of contribution, a special loan of up to 80 per cent of the accumulated retirement benefit amount may be taken.

Participation in the pension plan

• Every contributor who begins contributing on or after 1 Shrawan 2078 is included in the pension plan automatically.
• Contributors who began by the end of Ashadh 2078 may join by written application to the Fund.

Eligibility and calculation

A contributor qualifies for a pension on reaching 60 years of age with at least 180 months of contribution.

Monthly pension = (total contributions + investment return) ÷ 160

That amount is paid every month for the rest of the contributor’s life. A contributor who reaches 60 without completing 180 months of contribution may choose between taking the accumulated total as a lump sum, or dividing it by 160 and drawing the resulting amount monthly for life.

Where a contributor dies before reaching the qualifying age, the heir receives both the contributor’s and the employer’s contributions as a lump sum.

Spouse pension

Where a contributor dies after starting to draw a pension but before receiving 180 months of payments, and the surviving spouse has no alternative employment and is not otherwise entitled to a pension, the spouse receives 50 per cent of the pension the contributor was drawing, for life. The benefit is not provided where the marital relationship with the contributor no longer subsisted.

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If you would like your enlistment, contribution calculation or claim position reviewed, get in touch, or read more about our HR and labour law services. Our related commentary covers the Social Security Fund, SSF benefits and the claim procedure, and the Employee Welfare Fund.

This summary is general information, not legal advice. It reflects the position set out in the booklet, and rates and thresholds are revised from time to time, so take advice on the facts before acting.

Read the Original Booklet

The full illustrated booklet, in Nepali, is reproduced below and available to download.