Pension Reform: 'Relatively Low Hanging Fruit'.

THERE has been an enlight ening seminar organized by SDPI recently on pension reforms.

It was not only educating but an eye-opener to an issue which has multifaceted impact on the performance of the Government and it's delivery, as it's directly related to the performance and compensation of civil servants.

I was invited as one of the penalists due to my active engagement in the past on tapping long term project finance funding through capital market instruments, and exposure to this concept of being on the board of various public sector entities.

I have always been aware about the seriousness of the issue of growing pension liability for the Government and the public sector entities, but it was only during the research on this topic, it was dawned upon me how grave are the circumstances.

I must, at the outset, thank my colleagues, Saacyem Ali and Irteza Qureshi, who had done the research for me on this very critical topic which helped me realize how this existing/ emerging fiscal burden could be addressed.

This also motived me to put a brief paper together on the subject and was invited to write for newspaper for the mass awareness on this very critical matter, which touches almost entire populous one way or the other.

Let's begin with context and extent of challenge of the rising pension bill. Federal pension bill has increased to Rs 480bn in 2021, from Rs 150bn in 2011. According to reports from donors, federal government's unfunded liability currently stands at around Rs 3trn.

Post 7th National Finance Commission award, provincial governments' pension bill have also increased exponentially to Rs 500 bn in 2020, from Rs 75 bn in 2011. This is clearly an unsustainable path.

Studies suggest that with no changes to the existing pension arrangements, federal pension bill will rise to an alarming level of Rs 750bn by 2023. Provinces are likely to face similar challenges.

This is very frightening situation indeed which becomes more complicated due to the presence of fiscal pressures from compromised tax collections, SOE losses, accumulating circular debt, etc.

However, silver-lining is that out of all fiscal challenges of the Government, this appears to be an easier one to plug, given that this problem was faced by almost every country, particularly in developed world where the average life expectancy is must higher. There're real examples of how various countries had dealt with this issue successfully.

Before we go any further, would like to elaborate on fundamental concepts about pension scheme options which will help readers, especially who're not much familiar with this theme, to understand it and relate to ensuing discussion better. Employee benefits classify post-employment plans into two categories:

1). Defined Contribution (DC), whereby employer's liability is limited to the amount...