Khyber Pakhtunkhwa’s (KP) Minister for Finance and Health, Taimur Khan Jhagra, said that the provincial government’s move to introduce contributory pensions for new employees will help ease budgetary challenges and safeguard the pensions of government employees.
Highlighting the reform in a tweet earlier during the day, he said that “pensions expenditure is the biggest single cost challenge facing the government of Khyber Pakhtunkhwa,” and the implementation of contributory pensions will help address it.
1. KP's move to introduce contributory pensions for new employees is the most important fiscal reform by any Pak govt, safeguarding pensions of lakhs of govt employees. Pensions are KP's largest budget challenge, from less than Rs 1 bln in 2005 to 83 bln today, a 9500% increase. pic.twitter.com/gMyIVtToSM
— Taimur Saleem Khan Jhagra (@Jhagra) February 21, 2022
Underlining the principle benefits of the move, Minister Jhagra detailed that contributory pensions will accept contributions from employees and the government to constitute an individual’s pension fund, which will then be invested, with the individual assisting in the selection of the investment. He added that when an employee retires, they will have the option of withdrawing the pension or continuing to invest.
Minister Jhagra mentioned that the funding for employee pensions is secured “and there is no danger that employees’ pensions will be at risk. Also, it can mean that employees can withdraw pensionary benefits even if they retire before 25 years of service”.
The contributory pension program will be a part of the terms of service of new employees after the proposed amendments to the civil servant act are passed by the provincial assembly. “It will NOT apply to existing employees unless they voluntarily want to enter into it,” he emphasized.
In comparison with other countries, Minister Jhagra commented, “Almost every other country on earth has shifted away from unfunded, defined benefit pension programs, such as Pakistan has. Where defined benefit programs exist, they are funded at least partially through a pay-as-you-go system, by deductions from existing employees”.
He remarked that KP’s pension bill alone would rise from Rs. 80 billion to Rs. 507 billion within this decade, making up almost half (48 percent) of the budget, which is why “the best time for pension reform was yesterday”. Lamenting fiscal impediments in the past, he noted, “Sadly, past govts, because of incompetence & lack of will, never attempted to deal with a small problem”.
The minister said KP has led the way for Pakistan in tackling the issue of pensions by increasing the early retirement age to 55, reducing the unbelievably bloated pension hierarchy, stopping beneficiaries from taking multiple pensions, restraining active employees from taking a pension, and repurposing the pension fund.
Pensions can be drawn by up to 13 layers in a family tree, continue even a century after an employee’s death, and reactivated after stopping for a widow, son, unmarried or widowed daughter, wife/son /unmarried or widowed daughter of a deceased son, parents, brothers and sisters.
According to Minister Jhagra, “This was resolved by reducing pensions to widows/widowers, children & parents (not typical but we felt it was important in our cultural context). The resultant savings allowed us to increase widow and children pensions from 75% to 100% of the pensioner’s amount”.
Discussing a miscellaneous breakdown of provincial data, he added, “1935 individuals were found to be taking two pensions, and 738 active employees have been found also taking a pension for a deceased family member. These practices have been stopped”.
The minister continued, “5000 plus individuals retired at the peak of their careers, age 45, drawing a pension from your taxes in lieu of retirement but going on to enjoy a 2nd salary in the private sector. Increasing [the] early retirement age alone to 55 has resulted in savings of over Rs. 12 billion a year”.
The minister concluded by highlighting that the pension fund has been essentially repurposed to partially offset payment from interest gained toward the annual pension expense, and DMG and PCS officers have agreed to make pay-as-you-go contributions to pensions beginning last year.
“No other govt in Pakistan, provincial or federal has done as much to arrest a problem that is a real elephant in the room. We are safeguarding the pensions of our employees and protecting their futures, not putting them at risk,” he concluded.
