TO alleviate the strain on the government pension system, intellectuals and economists are actively discussing pension reforms for government employees in various forums. A significant proposal under debate is increasing the retirement age from 60 to 62-65 years. I believe that this bold move, if implemented, is essential to reduce the financial pressure on our economy caused by the rapidly growing pension budget, which has surged to alarming Rs 1400-1500 billion per annum.
It is important to understand that such reforms are not unprecedented. Many countries around the world have laws setting the retirement age for government employees above 60 years. Several European nations have already established the retirement age at 65. Given that the average life expectancy in Pakistan has now risen to nearly 68 years, it is both logical and practical to adjust the retirement age accordingly. This change not only aligns with global trends but also acknowledges the increasing longevity of our population.
If the existing pension system is abolished and a new system like the Contributory Pension Scheme (CPS) is introduced for new employees, it would reflect practices already in place in many countries such as India and Canada. This system is also currently applied to newly recruited employees in the KP province. Additionally, the BISP has recently initiated this pension scheme and it is applicable in other institutions as well. A contributory pension scheme involves both the employer and government contributing to a dedicated pension fund for the employee’s future benefit. Contributions are deducted from the employee’s salary monthly, with the government matching this amount. The fund grows through investment and upon retirement, the employee receives 50% of the accumulated fund while the rest remains invested, potentially yielding higher dividends than a standard pension.
In Pakistan, the government should consider implementing a contributory pension scheme for new government employees. Existing employees would likely have no objections to this change, as it would not affect them. This step would be highly effective in preventing the pension budget from escalating further, making it crucial to adopt the contributory pension scheme for newly recruited employees while maintaining the existing defined benefit pension scheme for current employees.
Implementing a Contributory Pension Scheme for new government employees can offer numerous benefits. Firstly, it will alleviate budgetary pressures by reducing dependence on the current defined benefit pension system. Secondly, the CPS promotes the sustainable growth of pension funds through long-term investments. Lastly, by enabling individual employees to manage their retirement savings, it fosters financial awareness and security. This pension scheme could be a significant and positive change for Pakistan.
Given the current 25% inflation rate, it’s recommended to adjust salaries accordingly to maintain employees’ purchasing power. Implementing fixed yearly salary increases can address concerns about annual strikes and provide clarity for both employees and the government. Collaboration between the two parties is essential to agree on these increments. Additionally, integrating hiring allowances into federal employees’ salaries can prevent delays in rent payments, a common issue.
The Contributory Pension Scheme is just one element of a larger effort needed to improve Pakistan’s pension system. This comprehensive initiative should involve boosting pension amounts for retired civil servants, tackling financial challenges within the existing pension structure, and prioritizing financial stability and secure retirement benefits for both the workforce and civil servants. To accomplish these goals, it’s essential for the government to establish a Pension Fund Management Authority, implement mandatory financial literacy programs for retirement planning assistance, and explore public-private partnerships to bolster pension funds.
—The writer is a contributing columnist.
(azeembaaghi@yahoo.com)
