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PESHAWAR: The government of Khyber Pakhtunkhwa in collaboration with Securities & Exchange Commission of Pakistan (SECP) has developed a framework for rolling out of a contributory provident fund for all new employees, said the White Paper of the provincial government on budget 2022-23.

The initiative is being considered a major step towards the sustainability of pensioner benefits and transition towards a contributory provident fund for new recruits. Under the scheme, participants will contribute 10% of basic pay towards their provident fund for the duration of their qualifying service. This will be matched 150% by the employer-in this case, the government- resulting in a total contribution of 25% in basic pay.

This is a critical step in managing the pension liability, which has ballooned to 15% of the annual budget based on actual expenditure. Unfunded pension systems are relics of the past and can no longer be sustained-one does not need to look far for examples, as the financial security of retired Pakistan Railways employees has been robbed due to the unfunded nature of its pension scheme.

The contributory pension model being introduced will have all the features prevalent in international pension systems in developed countries, as well as being tailored to local norms and requirements. Shariah compliant fund options will be made available to all recruits alongside the conventional fund option. The participants will have the flexibility of adapting the fund investment allocations based on their individual risk profile, similar to the prevailing pension models worldwide. Upon retirement, participants will be made able to choose between receiving the entire benefit as a lump sum payment or allocating some or all of the retirement benefit in a long-term annuity ranging in duration from 20 years to the reaming life of retiree.

The pension bill for FY 2022-23 of the KP government is estimated to be Rs.107 billion, including Rs.1 billion for the newly merged areas (NMAs), with the number of pensioners increasing to around 177,693. Overall, Khyber Pakhtunkhwa has a 4:1 proportion between current employees and retirees. This wage bill is projected to grow at 16.6 % in actual terms in 2020-21, while forecast growth rate for 2022-23 is 24.6%.

With this trend continuing, salaries and pensions will surpass all provincial receipts in 2027. Pension is one of the major expenditures for the provincial government, making up around a quarter of the wage bill. The significant rate of the increase comes at the cost of squeezing the development budget, and critical non-salary and service delivery expenditure. This includes initiatives such as the flagship Sehat Insaf Card Programme, infrastructure expansion, civil work, maintenance and repair of schools, sports and health facilities, provision of medicines, and social welfare projects.

To mitigate the increasing pension burden, a comprehensive pension reforms strategy has been approved by Cabinet and series of corresponding changes have been passed in existing legislation by the provincial assembly. Through these effects, the provincial government has executed short and long term measures like increase of minimum voluntary retirement age to 55 years, which has resulted in estimated annual savings of Rs.12 billion.

The provincial assembly has also approved the KP Civil Servants Pension Rules 2021 to rationalize pension beneficiaries to direct dependents and parents, while also limiting each beneficiary to obtaining only a single pension, whether self or family person. In addition, active employees will no longer be eligible to draw family pension. All these amendments have removed multiple pensioners and therefore reduced the province’s pension burden. These changes in the family pension rules and restrictions on the dual pensioners will save the government an estimated Rs.12 billion in the coming 10 years, as well as streamline the beneficiary’s hierarchy and pensioner’s v/s inflow ratio.

Copyright Business Recorder, 2022

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