Editorial

The issue of pension reforms has escalated into a pressing concern, demanding immediate attention due to the mounting pension liabilities at both federal and provincial levels. This situation is not only straining debt sustainability and fiscal reserves but also depleting the funds available for the social sector. The IMF has underscored pension liabilities as a crucial area requiring comprehensive transformation. The finance ministry has reportedly shared a pension reform program with the IMF, which mirrors the one proposed by the former PDM government but remained unimplemented. The reform plan suggests alterations in the formula for calculating pensions, reducing the commutation rate, and indexing the yearly increase in pensions to the Consumer Price Index. The plan also recommends limiting the beneficiaries of deceased employees and discontinuing the practice of advancing multiple pensions.

The current trajectory of the annual pension bill is unsustainable and regularly crowds out expenditure on other areas of vital importance. According to leading development experts, Pakistan’s pension disbursements are set to grow at a rate of up to 25 per cent per year for the next 35 years. Without a far-reaching transformation of the pension program, the government will not have the funds to give out any pensions in the future.

While the plan proposed by the finance ministry is welcome and essential, it does not go far enough to ensure that future pension bills come down to sustainable levels. The federal and provincial governments need to switch to a funded, contributory pension model, which has proven to be successful in other countries like India. This model [explain the benefits of the model, such as increased sustainability, reduced burden on public finances, etc.], while a similar undertaking failed in Pakistan. Trillions of rupees in pension liabilities continue to come out of the government kitty, and it is high time that we address the numerous loopholes and anomalies marring the current system.

Transitioning to a contributory program will not only establish a sustainable framework for future retirement benefits but also ensure a significant reduction in the strain on public finances in the long run. The government must stand firm against all pressures from the bureaucracy and other vested interests and be prepared for any attempts from within the civil service to undermine pension reforms. This reform holds the promise of a more secure and stable future for our pension system.

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