THE Establishment Division’s opposition to federal pension reforms is unreasonable and aimed at obstructing their approval and implementation. The reforms aim to cut federal pension spending and contain its budgetary fallout by reducing benefits for existing pensioners as well as starting a funded contributory pension scheme for current government employees, in accordance with commitments made to multilateral lenders. The government seems to have largely completed its inter-ministerial consultations on the proposed amendments to the pension scheme, and its recommendations will soon be placed before the military-backed SIFC for a decision. It is obvious that the unsustainably expensive public ‘pay-as-you-go’ pension system is a major fiscal policy challenge for Pakistan after debt payments, as its burden is constantly rising. Overall federal pension spending has surged by a whopping 32pc to Rs801bn this year from Rs609bn in FY23 due to new retirements and increased benefits. Military pensions have grown by 26pc from Rs447bn to Rs563bn — constituting nearly three quarters of the total federal pension expenditure. This is due to early retirements.

Pensions make up a huge chunk of the public sector wage bill. The cost of pensions nationally will be over Rs1.5tr that must be financed through the budget. The pension bill is expected to grow annually at 22-25pc per year for the next 35 years. Some people like the former KP finance minister Taimur Khan Jhagra, who introduced substantial pension reforms in his province, believe the country might not have money to pay anything to its existing or new pensioners 10 years from now if reforms are not introduced. Given the nature and magnitude of the coming crisis, it is frustrating to see the bureaucracy selfishly stall the execution of reforms introduced in the budget for the present fiscal year to protect its benefits. Over the years, public pensions in many countries have become less generous by limiting eligibility and moving towards defined contribution public pension programmes in which beneficiaries make routine, modest contributions over a stipulated period while in active service to qualify for sustained benefits post-retirement. The way our pensions are surging and eating into budgets that could have been spent on opening schools and hospitals or providing drinking water to people demands urgent action. If we don’t act today, we will end up paying a much bigger cost for our inaction.

Published in Dawn, January 29th, 2024