https://arab.news/b4wut
- A pension fund has been formed in which government employees will contribute 10 percent of salaries
- A senior economic expert says the challenge for the government will be to manage the fund effectively
ISLAMABAD: Pakistan has launched a contributory pension fund scheme for new entrants to the armed forces and civil government, a senior official said on Wednesday, expressing hope it would streamline current public expenditures by setting up an autonomous fund to manage large pension payments.
The federal government’s total expenditure for pensions is estimated at Rs1.014 trillion ($3.65 billion) for the current fiscal year, up from Rs821 billion ($2.96 billion) last year. The amount includes pension liabilities of the armed forces, which are Rs662 billion ($2.38 billion) for the current fiscal year, up from Rs563 billion ($2.03 billion), showing an increase of about 18 percent.
The government has been under immense pressure from the International Monetary Fund (IMF) to reform the public sector pension system to reduce monetary pressure on current expenditures. The scheme will not be applicable to existing government employees.
“This fund is effective from July 1 this year as the government has directed the AGPR [Accountant General Pakistan Revenues] to start deductions from the employees’ salaries,” Rana Ihsan Afzal, a coordinator to Prime Minister Shehbaz Sharif, told Arab News.
“This is going to be an autonomous fund wherein the government will contribute its share, and definitely this will help ease pressure on the current expenditure,” he said, adding the collected funds could be invested in a secure financial instrument with the approval of the board of governors.
“The utilization and investments of this fund, and other details will be finalized in the coming weeks and months,” he continued.
According to a finance ministry notification, federal government employees will contribute 10 percent of their basic pay while the government will contribute 20 percent to the fund.
The government has also decided the future contributory pension fund scheme “shall be introduced for all the civil employees of the federal government, including the civilian paid from the defense estimates who were appointed on a regular basis or after July 1, 2024.”
“This scheme shall also be applicable to the armed forces who are appointed on a regular basis on or after July 1, 2025,” the notification said.
The government has already allocated Rs10 billion for the pension fund in the budget for FY2024-25.
A Pakistan Institute of Development Economics (PIDE) study said in 2020 the practice of paying pensions “is inherently unsustainable as pension expenditure growing at around 25 percent, cannot be provided from an economy growing at a significantly lower rate.”
“It is estimated that by 2050, pensions will account for 56 percent of current expenditure,” it added. “The government will not have the funds for pension expenditure after 8-10 years.”
Dr. Vaqar Ahmed, a senior economist and joint executive director at the Sustainable Development Policy Institute (SDPI) in Islamabad, said the pension fund would help ease the burden on taxpayers.
“The basic concern around this government fund is about its effective management as employees’ experiences with the EOBI [employees old age benefits institute] and WWF [workers welfare fund] have not been productive,” Ahmed told Arab News.
“The government should give choice to the employees to keep their money either in the government funds or the private pensions schemes offered by different banks and institutions,” he added.
“This way the government will have to compete with the private sector to better manage the funds.”