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EDITORIAL: The long-festering issue of pension reforms has gained significant traction in recent times due to the creeping realisation that the country’s growing pension liability at both the federal and provincial levels – running into trillions of rupees – is exacting an undue burden on our debt sustainability, as well as our fiscal reserves, while also eating into vital resources that could otherwise be spent on the social sector.

Added to these concerns is the pressure that Pakistan faces from the IMF (International Monetary Fund) that has long flagged our galloping pension liabilities as a key area, requiring a comprehensive transformation.

With the federal and provincial pension expenditure for this year set to exceed the Rs1.5 trillion mark – a significant 20 percent rise from the previous year – media reports are now suggesting that the finance ministry has communicated a pension reform programme to the IMF.

The programme appears to be on the same lines as the one that the erstwhile PDM (Pakistan Democratic Movement) government had introduced in its budget for FY2023-24, but which remained unimplemented owing to stiff resistance from the Establishment Division, which had quite self-servingly argued that it would have an adverse impact on members of the bureaucracy.

A quick overview of the reform plan shared with the IMF tells us that the formula for calculating pensions has been changed, with the commutation rate lowered, and in a bid to control the annual pension growth rate, the yearly increase in pensions that is currently calculated based on the last drawn pension, will now be indexed to the Consumer Price Index with a maximum increase of 10 percent allowed per year. In addition, the plan proposes to limit the number of beneficiaries of deceased employees, as well as put a stop to the practice of advancing multiple pensions.

It is evident that the current trajectory of our annual pension bill is entirely unsustainable, with this huge burden on our fiscal reserves regularly crowding out expenditure on other areas of vital importance, including on health and education. In fact, as media reports quoting leading development experts have pointed out, Pakistan’s pension disbursements are set to grow at a rate of up to 25 percent per year for the next 35 years, and without a far-reaching transformation of our pension programme, we are looking at a future where ten years down the line, the government won’t have the funds to give out any pensions.

Given this perilous state of affairs, while the plan proposed by the finance ministry is welcome and essential, it does not go far enough to ensure that our future pension bills come down to sustainable levels. What is needed forthwith is for federal and provincial governments to switch to a funded, contributory pension model, something that neighbouring India implemented way back in 2004 under a World Bank project, while a similar undertaking failed in Pakistan.

As a result, trillions of rupees in pension liabilities continue to come out of the government kitty. We do not even have to look beyond our borders for examples of governments switching to a contributory pension model given that the last PTI (Pakistan Tehrik-e-Insaf) government in Khyber Pakhtunkhwa (K-P) introduced just such a scheme in 2022 under the stewardship of the then provincial finance minister, Taimur Khan Jhagra.

The reality is that we have no choice now but to implement pension policy reforms that address the numerous loopholes and anomalies marring our current system, and that ultimately encompass transitioning to a contributory programme. This will help establish a sustainable framework for future retirement benefits, ensuring that the strain on public finances will come down in the long run. The government must resist all pressures from the bureaucracy and other vested interests, and be prepared for any attempts from within the civil service to sabotage pension reforms.

Copyright Business Recorder, 2024

Comments

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KU Apr 06, 2024 09:32am
The long festering pension issues are the tail of organism, the real problem is the head or 3 million plus festering govt servants which gobbles up needed revenue with useless existence.
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Usman Apr 06, 2024 10:44am
Penison is basically given to govt employees from tax generated by private organistaions whose life was made hard by govt employee.We say NO TO PENSIONS.CANCEL THEM
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Irfan Ullah Apr 06, 2024 10:46am
Include in your suggestions stopping pension for those getting another job (paid from public money) after retirement.
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Azhar Apr 07, 2024 12:29pm
Stop pension of Judiciary Stop pension of MPAs, MNAs, Senators, Governors, Presidents. They are not from poor Reduce Buearocracy and as every body work, no need of clerks, stenos, N/Q, SO, etc,
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Erdogan Admirer Apr 07, 2024 12:33pm
Stop pension and kick out old people to Afghanistan.
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Aam Aadmi Apr 07, 2024 09:33pm
Who paid for this article and how much?
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Ashraf Apr 08, 2024 03:05pm
Our Pension System has collapsed. The solutions are futile attempts. Will not prevent blowouts or lead to sustainable arrangements. WB Review 2023 says these reforms will accentuate the issue.
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Ashraf Apr 08, 2024 03:08pm
These is no such thing as pension reforms. Only damage limitation attempts likely to make bad situation worse as pointed out in WB Financial Review 2023.
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Amna Apr 09, 2024 02:33am
@Usman, Agreed
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Amna Apr 09, 2024 02:34am
Study economics and them come up with idea Donot have basic knowledge how g8vr organisation work to generate finances
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Amna Apr 09, 2024 02:37am
Its the duty of govt to creat economic activity. Insteadig of curbing pension and. Beneficiaries. Built investor confidence and generate finances to feed the pensioners
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Amna Apr 09, 2024 02:38am
@Ashraf, Agreed We should devise our own policies
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Sara Apr 11, 2024 10:49am
Let them stop pension. They'll remain poor even then coz basic problem is not pension rather it's their policy.
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