While 25% of Sri Lanka's population will be older than 60 years by 2041, the country's existing pension system is unable to guarantee a minimum income to the elderly since:

• benefits are mostly below the poverty line
• less than 15% of the population have access to a pension scheme

This report argues that Sri Lanka should adapt a regime with universal non-contributory flat-rate pensions. Other countries with high poverty and informal employment have found that such a regime is the most efficient solution since it:

• successfully reduces poverty
• is very simple to administer
• is politically popular
• can be the foundation of a broader pension system
• reaches the poor more effectively than means-tested regimes
• does not discourage the elderly from working
• does not discourage people from saving for old age
  

Based on these considerations, this study provides estimates of the fiscal cost of a universal pension in Sri Lanka and finds that it can be affordable:

• providing cash benefit equal to the poverty line to everyone above the age of 70 would cost 0.8% of Sri Lanka's GDP
• a pension for everyone over 60 would cost 1.8% of GDP
• assuming constant growth, a pension for the over-70s would cost only 0.6% of GDP in 2041
• with yearly GDP/capita down to 1.8%, costs in 2041 would equal 1.1% of GDP
• pensions should be financed through a broad based tax such as the VAT
• a universal pension would be relatively simple to set up and administer as only little information is required (proof of residence and age)
• a funeral benefit would set incentives to register deaths thereby preventing any prolonged payment of benefits after the claimant's death
  

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