Failed pension cuts

As bizarre as it may sound, or is, the government failed to secure pension cuts this week because it did not have the mandate to seek approval for them from the Economic Coordination Committee (ECC). The authority to approve changes in the pensions policy rests with the prime minister by way of the president.

However, the problem with pension cuts lies deeper than it appears to be. Pensions for former civilian employees and military personnel constitute the fourth largest expenditure in the federal budget. The annual pension budget was increased from Rs801 billion to Rs886 billion, with military pensions rising from Rs563 billion to Rs647 billion. The military authorities did not agree to multiple proposals seeking to rationalise pension benefits. The government then presented a watered-down pension scheme at the ECC moot. The economic body deferred even this diluted scheme. The proposal which excluded major elements could have led to substantial savings for the government and could have paved the way for providing more fiscal space for much-needed development and social spending in the country.

A country like Pakistan, which was on the brink of bankruptcy not too long ago, cannot afford to spend hundreds of billions annually on pension expenditures. Pakistan has again approached the IMF for another programme of at least $6 billion. The international lender too has urged Pakistan to reduce its pension expenditure and withdraw income tax exemptions from various pension schemes. The current pension structure is a relic of the past and hardly any other country in the world follows such a system. It is intelligible to not do away with pensions immediately, considering a significant number of people depend on them. But some scheme needs to be introduced, perhaps phase-wise, with the aim to eventually discontinue pensions. Pakistan could also consider employing an initiative similar to that of social security systems followed elsewhere.