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Peshawar

July 13, 2018

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KP likely to implode under pension load if unbridled growth not checked

PESHAWAR: The financial edifice of Khyber Pakhtunkhwa is set to implode if the provincial finance managers and political leadership did not rein in the rising growth in the pension head that would go up to Rs172 billion over the next nine years.

Pakistan belongs to the group of the countries where management of the pension is carried out through a somewhat unsustainable way.

The financial mangers all over the world manage the pension fund in two very prudent ways. In first mode both the government and cooperate sectors organisations deduct a certain monthly amount from the salaries of their employees.

They create pension fund and invest the money. The income is disbursed among the retired employees as pension. In the second mode the in-service employees contribute to the pension fund and the retired employees are paid from it. On the retirement of the current workforce, others get the jobs and continue to contribute to the fund to pay the pension of those who retired before them.

However, in Pakistan pension to the retired government employees is being paid from the total receipts of the province which is the taxpayers’ money. As put by Shakeel Qadir Khan, secretary to the government of Khyber Pakhtunkhwa for Finance Department, this is not a prudent financial management. “Yes, growth in pension is our major worry,” Shakeel Qadir said while talking to this scribe. “To a certain level it is affordable, but beyond that it isn’t,” the Finance Secretary said, adding, “In 2001-02 our pension component was just Rs1 billion. It kept rising since then and taking strides over the last ten year presently it is pitched at Rs53 billion. The growth in pension and salary is more than growth in the normal budget of the province.”

The pension growth remained alarming as it has been recorded at double digit, Shakeel Qadir said. However, he claimed that they have succeeded in reining in the unbridled growth in pension.

Shakeel Qadir informed that according to their projections, the pension component would be around Rs172 billion in 2027 and become a major issue for the province.

About consistency of increase in the pay and pension over the last 10 years, he said apart from pension liabilities after retirement, total increase recorded over the last 10 years is Rs 266 billion with an average per annum increase of Rs24 billion.

“A dam could be constructed for Rs266 billion, two high class hospitals could be constructed each year, a Bus Rapid Transit (BRT) could be built each year, a university could be constructed each year with the amount,” he said.

In the current financial year (2018-19) increase in pension would have financial implication of Rs4.28 billion. This would include 10 percent increase in net pension to all pensioners of provincial government with financial implication of Rs3.30 billion, increase in minimum pension from Rs6,000 to Rs10,000 and family pension from Rs4,500 to Rs7,500 having the financial implication of Rs275.71 million, and increase in minimum pension to Rs15,000 for the pensioners above the age of 75 with financial implication of Rs702.70 million. “Today our pension deposit is estimated at Rs40 billion and it could only be self-sustaining when it would be around Rs700 billion,” the finance secretary further said.

To cope with this state of affairs, the provincial Finance Department is taking up a number of steps to reform the pension system. Shakeel Qadir said they were working on various patterns to rake out anomalies in the somewhat “liberal pension regime.”

He said that Khyber Pakhtunkhwa remained first in the country to complete digitisation of the pensioners’ data. He pointed out that the 135,000 accounts were being verified through National Database and Registration Authority (NADRA) to do away with the anomaly of ghost pensioners.

He said the Finance Department is also going to take a tough decision of convincing the government servants and employees to contribute in the pension fund.

The government also gives a certain amount to the pension fund every year and with the employees contributions the pension fund would certainly grow quickly, he said. He said the salary bill at the moment is over Rs220 billion and only with one percent deduction from the employees over Rs2 billion could be contributed to the pension fund.

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