ISLAMABAD: The government is expected to appoint within a week an actuarial firm for a study on actual costs and ramifications of the growing pension bill as the government considers existing system of payment of salaries and pensions as unsustainable.

“The current model of disbursements of pay and pensions is not sustainable,” said Finance Minister Hammad Azhar on Tuesday. “There’s a need to rationalise salaries, pensions, allowances, perks etc by removing anomalies to ensure equity”, an official statement quoted him as telling the chairperson of Pay and Pension Commission (PPC) Ms Nargis Sethi.

The finance minister also asked the PPC chief “to find a way forward which is transparent, feasible and sustainable in the long run,” the statement said, adding he extended full support and facilitation to the PPC in this regard. The finance secretary also attended the meeting.

Informed sources said Prime Minister Imran Khan had shown keenness to provide relief to the government servants and pensioners in the coming budget in view of unrest among their rank and file because of negative impact of higher inflationary pressures, particularly in shape of kitchen items.

Azhar says current payment mechanism unsustainable

However, a major reform in the pension system may not be possible in the near future. This stems from the fact that PPC was originally constituted about two years ago but remained mostly dysfunctional for a long due to competing directions of the PPC and prime minister’s institutional reforms and austerity. As a result, the previous chairman of the PPC resigned due to non-cooperation from the relevant agencies.

The PPC was reconstituted about four months ago with former secretary Nargis Sethi as its new head. Even the new PPC could not pick up pace due to Covid-19 limitations.

On top of this, the appointment of an actuary firm could not be appointed to conduct a detailed actuarial study on the costs and cash flows for the pension budget that has been growing rapidly to unsustainable levels and has drawn attention of the international lenders for its containment.

A firm has already been shortlisted and would be appointed within a week to start its work, an official told Dawn, adding that under the terms of reference (TORs), the firm would take at least six months to complete its task. The PPC can give its interim recommendations given the prime minister’s keenness for relief to government employees and pensioners.

The statement said the chairperson Sethi briefed the finance minister about the working of the PPC to streamline the existing pay and pension structure as per mandate of the commission. She updated the finance minister about the consultative process being followed to ensure all stakeholders are onboard in working out a financially viable solution for disbursement of pay and pensions. “The current pension payment system is a massive burden on our economy,” she was also quoted as saying.

She also apprised the Mr Azhar about working of sub-committees which have been assigned ToRs to deliberate and present firmed-up proposals for harmonisation of pay and pension system across the country.

The minister noted that PPC had “a very challenging task ahead” as the federal and provincial government employees were looking forward with great hope towards the recommendations of the commission.

In a recent quarterly report, the State Bank of Pakistan had also flagged the unaffordable and unsustainable pension system and suggested a phased reform process. “With limited fiscal space, Pakistan may not afford the immediate switching from PAYG (Pay As You Go) to a funded system, since the latter will require the government to make exclusive contributions along with the existing pension payments”, the bank had warned.

It had, however, proposed parametric reforms initially to rationalise the cost and incentive structure of pension system and improve the fiscal sustainability of future expenses. Later, the government could consider adopting the comprehensive framework of funded pension system.

Published in Dawn, April 7th, 2021