ISLAMABAD: The government is considering lowering the average age of superannuation by five years to 55 in order to manage the long-term pension bill, even as it considers raising the retirement age for specific occupations.
According to a senior government official who spoke to Dawn, this is one of the ideas put out by an international lender and is presently being considered by the federal government as part of larger pension reforms.
It’s interesting to note that the establishment division opposed the finance ministry’s proposal last year to raise the superannuation age by two years to 62 in order to accommodate temporary delays in payments for retirement benefits.
Government employees’ pensions are currently calculated using their most recent basic income at age 60, with some situations capping at 30 years of service.
The cabinet’s Economic Coordination Committee (ECC), chaired by Finance Minister Muhammad Aurangzeb, voiced concerns last week about the delays in carrying out its directives from May 27 and June 13 regarding changes to the pension plan, a report from the Pay & Pension Committee, and a future roadmap.
The decision has not yet been put into effect, and the meeting was informed that it would take longer because numerous stakeholders would need to be consulted in detail.
Sort through the ideas put forth as part of broader pension reforms.
If adopted universally, lowering the retirement age by five years could result in a decrease in pension payout and a reduction in the annual cost of pension liabilities of about Rs50 billion.
The government would think about a phased adoption because of the first spike in spending that would result from early severance compensation. Additionally, this might make it easier for seasoned and competent public sector workers to go to the private sector.
The government pension expense currently exceeds Rs1 trillion, with the civil and military forces contributing roughly Rs260 billion and Rs750 billion, respectively. The government recently implemented a contributing pension plan for all future government jobs in an effort to curb the rising annual pension bill.
The government would be requesting that public sector companies, regulatory bodies, and professional associations lower the retirement age for their employees while it considers the legal and financial implications of implementing such a program for federal government employees and its adoption by provincial governments.
Retirement benefits and severance packages would not be paid by the federal government, as may be the case, and these agencies would handle financial needs using their own funds or creative outside solutions.
According to knowledgeable sources in the finance ministry, a prominent multilateral had proposed that the pension budgetary head might benefit from a five-year reduction in the retirement age. Potential advantages included lower pension obligations and pension payment savings.
The government would have to pay pensions for a shorter duration-based computation if the retirement age were lowered, which might eventually result in a smaller total pension burden. Additionally, the government would save money on pension payments if employees retired early because fewer years would be covered by pension payments.
There are some possible problems with the plan. Accordingly, lowering the retirement age may result in higher upfront expenses (due to more early exits), such as retirement benefits or severance packages, which could somewhat offset any possible long-term savings.
In addition to the potential effects on social security systems, a lower retirement age may result in the government losing experienced human capital, which could have an influence on staff productivity and efficiency.
According to officials, the retirement age ranged from 55 to 58 years old, and in certain situations, up to 60, in nations like Brunei, Malaysia, Indonesia, Thailand, the Philippines, and Sri Lanka.
A new research by the public sector think tank Pakistan Institute of Development Economics claims that government pension spending, whether it be federal, military, or provincial, is out of control and mostly unfunded. Between 2011 and 2021, it grew from Rs164 billion to Rs988 billion.
Over the past ten years, the federal government’s pension spending—including military spending—has climbed by more than five times. The provincial pension spending, however, has climbed by more than seven times. In contrast, the study noted that tax revenues had only increased by 2.7 times during the same time period, highlighting sustainability problems.
