K-P’s pension revamp

K-P government engages 12 pension fund managers

The Khyber-Pakhtunkhwa government has introduced a new pension system aimed at providing better benefits and more security to retirees. The new Voluntary Pension System will eventually replace the old and outdated pension system. For now, however, it will apply to employees who joined the provincial government on or after June 7, 2022, with the total number of pensioners covered by the scheme expected to eventually rise to around 33,000 civil servants.

The K-P government has engaged 12 pension fund managers to ensure that the new scheme remains self-financing and doesn’t become a burden on the government — the current pension programme has ballooned from less than 1% of the total consolidated budget to over 12% in the past two decades, rising from just Rs878 million in FY2003-04 to Rs132 billion in FY2023-24. Meanwhile, the federal government has unfunded pension liabilities of about Rs3 trillion.

While there are many reasons for the increase, including bloated hiring practices, the most significant is increasing average ages — people are now often paid pensions for several decades, rather than a few years. This is why the unfunded pension model must be replaced. Even abroad, pension reform is a major issue because many pension programmes did not account for some very obvious eventualities, such as rising average ages. This can be addressed most directly by increasing pension pay-ins, or less popularly, reducing payouts. The other main option is increasing the retirement age, which is less feasible in Pakistan as it reduces job openings for younger people.

Once payouts begin, we also hope that the new fund will have more safeguards in place to protect from fraud, but at the same time, that these safeguards do not inconvenience pensioners in poor health. We have all heard anecdotal stories of sickly pensioners with limited mobility being forced to show up at the bank to prove they are alive. Conversely, there are also stories of the unentitled children, and even grandchildren of long-dead pensioners defrauding the government.

Published in The Express Tribune, November 25^th, 2023.

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