PESHAWAR: The pay and pension bill of Khyber Pakhtunkhwa continues to balloon at an alarming rate eating into precious little development funds amid renewed efforts to reform the outdated system and arrest the upward trend, according to White Paper for the Budget 2022-23.

According to the budget document, the pension expense for the upcoming financial year is estimated to be Rs107 billion, including Rs1 billion for tribal districts, with the number of pensioners increasing to around 177,697.

It said overall, KP had a 4:1 proportion between the current employees and retirees. “The wage bills is projected to grow at 16.6 per cent in actual terms in 2021-22, while the forecast growth rate for 2022-23 is 24.6 per cent,” it said.

The province’s pension bill was Rs21 billion in the financial year 2013-14.

Next budget’s documents put expenditure for the purpose at Rs479bn

Similarly, the salary bill of KP’s burgeoning bureaucracy has ballooned massively from Rs119 billion in 2013-14 to Rs345 billion in 2021-22. The budgeted salary figure for 2022-23 has been estimated at Rs372 billion.

“With this trend continuing, salaries and pension will surpass all provincial receipts in 2027. “This would leave no fiscal space for the provincial development programme”, the white paper warned.

“The significant rate of the increase comes at the cost of squeezing the development budget, and critical non-salary and service delivery expenditure. This includes initiatives such as the flagship Sehat Card program, infrastructure expansion, civil works, maintenance and repair of schools, sports and health facilities, provision of medicine, and social welfare projects”, it said.

In order to arrest this alarming situation, KP cabinet approved pension reforms strategy and amended the relevant laws enforcing short term and long term measures including increasing the minimum voluntary retirement age to 55 years which has resulted in estimated annual savings of Rs12 billion.

Accordingly, the Provincial Assembly also approved the Khyber Pakhtunkhwa Civil Servants Pension Rules 2021 to rationalise pension beneficiaries to direct dependents and parents, while also limiting each beneficiary to obtaining only a single pension, whether self or family person.

“In addition, active employees will no longer be eligible to draw family pension. All these amendments have removed multiple pensioners and therefore reduced the province’s pension burden. These changes in the family pension rules and restrictions on the dual pensioners will save the government an estimated Rs12 billion in the coming 10 years, as well as streamline the beneficiary’s hierarchy and pensioner’s outflow vs inflow ratio”, it said.

Additionally, limiting the beneficiaries to the pensioner’s widow or widower, dependent children and parents would have an immediate impact of saving Rs1 billion annually.

Besides, the provincial assembly also passed an amendment to the Khyber Pakhtunkhwa Civil Servants Act, which requires new employees to participate in contributory provident fund to ensure the sustainability of retirement benefits for current employees, as well as future recruits, the White Paper said.

The budget document acknowledged that the current approach of utilising the pension fund for pension payments was futile as presently the pension bill was growing at around 22% which, it said, was double the rate of pension fund growth at 10 per cent.

At this rate, for the pension fund to pay the liabilities, the document said, it would need to have to have a size of almost Rs1 trillion. “Consequently, the government decided to utilise the pension fund’s annual profits for paying a portion of the yearly pension bill.”

Outlining the reforms strategy, the document said that the government has developed a framework in collaboration with the Securities & Exchange Commission of Pakistan for the roll-out of a contributory provident fund for all new government employees.

It said the new contributory pension model would have all the features prevalent in international pension systems in developed countries, as well as being tailored to local norms and requirements with an option for Shariah compliant fund.

Published in Dawn,June 14th, 2022