Pension predicament
One of the most concerning aspects of government spending remains the awful pension system, which was seemingly set up with the intention of bankrupting the county. The government pension system was historically unfunded — money is allocated in the budget every year — causing the strain on the government to increase disproportionately every year, as more people retire and average ages continue to increase. The current pay-as-you-go system means there will always be fewer people paying into the system than recipients, and current employees have no guarantee that they will receive pensions on a par with what they pay in. And it is not just the bureaucracy. Judicial and parliamentary pensions all take massive sums to pay off, while the military pensions, which are expected to cost about Rs563 billion this year, dwarf all others.
Meanwhile, high population growth means there is a constant need for new jobs. Failing job creation, the alternative is vacancy creation by setting a low retirement age. Unfortunately, this also increases pressure on the pension budget. Thus, while increasing the retirement age should be seriously considered, without population control and private sector job creation, it could do more harm than good.
This is why the most realistic solution is to set up proper pension funds, as is increasingly becoming the case in other countries for both private and public pension plans. While there has been some pushback over the salary deductions associated with contributory pension systems, there is a relatively simple workaround — weigh the deductions against near-future pay increments so people don’t see their paychecks decrease. Alternatively, deductions could be pre-salary, with the government paying into the fund itself. The government could also encourage people to directly pay in more money by offering matching funds up to a certain level. Similar funds could also be set up to complement or replace the underfunded Employees Old Age Benefit Institution system.
Published in The Express Tribune, April 9th, 2024.
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