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Thursday, July 18, 2024

Pensions: a never ending flow of money from the exchequer?

While the demand for pensions keeps rising, there is no money in the kitty to pay. It may have a sad ending as it is not an act of comedy performed at weddings.

The pensions burden on the national exchequer has crossed the trillion-rupee mark. At Rs 1.1 trillion it is about 15 percent of the budget, with Rs 900 billion being the share of the provinces. I am fully supportive of the retirees as it was a part of their package when they were hired, but this system cannot continue any longer. If not stopped, first the provinces and then the country will go bankrupt.

Pensions should be replaced with provident fund

There has to be a change of direction. Starting from 2021, pensions should be replaced with gratuity and provident fund for all new inductees putting this colonial-era practice to an end. Pensions, Government Officers Residences(GORs) and membership of elite clubs were part of the colonization process together with several other perks.

Read more: PM Imran Khan increased EOBI Pensions

I remember on the sidewalk of the Charing Cross on the Mall, trained domestic help looking for work would gather to be picked up by prospective employers. Most of them carried ‘Letters of Recommendation’ from the colonial masters whom they had served. Some of them even had pensions coming from abroad. They were well trained and very competent but fussy as they had a secondary income.

My father preferred them as their presentation and demeanour was impressive, but my mother never got along with them as according to her they considered themselves to be master chefs or ‘Lat Sahib’ and would refuse to indulge in menial kitchen work like washing the dishes or cutting the vegetables. The poor fellows never survived for long in local kitchens and had to rely on their pensions coming from ‘gora memsahib’.

Most of us who started working in Grade 17 drew salary in hundreds while the pensions are now in lakhs, the system has finally dried up

Gradually they faded away but unfortunately, our royal colonial bureaucracy and their GORs survived together with their pensions to rule over us, the so-called free people of the land of the pure. The burden has now become unbearable, so no more pensions. Like the pensionable ‘Master Chefs of Charing Cross’ faded away, this system of pensions should now be replaced with better sustainable and self-generating funds.

The current system is a levy on the budget with no long-term planning or back-up accumulated funds. The provident fund approach, which is now prevalent in the world, is self-generating. The employee contribution is matched by the employer and deposited into a retirement account.

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These funds are then invested to yield profits. At the time of retirement, the employees receive the entire amount and are then largely on their own while the role of the state ends.

Pension: a long term, never-ending flow of money?

In the current arrangement, the retiree receives a monthly pension, and after the death of the retired employee, the wife is entitled to this money, and in after her death the unmarried daughter.

It is a long term unending outflow of money for which no thinking has been done in the last 72 years. Most of us who started working in Grade 17 drew salary in hundreds while the pensions are now in lakhs, the system has finally dried up.

In addition to salaries, the bill of perks runs into billions. The retired judges of the superior judiciary are entitled to a hefty pension, and also get chauffeur-driven cars of recent model. All this was made possible after the Lawyers Movement of 2007. Now the judiciary is free but expensive with a huge backlog of undecided cases.

In the initial years of Pakistan, upper ceiling of pensions were notified, for example, for the National Bank of Pakistan it was fixed at Rs 650 per month

After the martial law of 5 July 1977, pensionable government jobs were doled out to win favours in which both merit and performance were largely ignored. Today the entire non-performing state apparatus has become an unbearable burden for the nation.

Finally, reforms are being considered. After 20 years of service, performance evaluations will be carried out for the job to continue. This together with removing the facility of future pensions will go a long way in reforming the system and reducing the budget deficit.

In the USA, the cut-throat capitalist approach of survival of the fittest was adopted. There were no pensions or social support system until the Great Depression of the 1930s. President Franklin D Roosevelt introduced a Social Security(SS) system as a state pension fund for the elderly. Every citizen is issued a SS Number(SSN). It is a kind of a tax levy both on the employee and the employer.

Read more: Is bureaucracy stalling change?

On attaining the age of 60 years individuals can claim a monthly stipend. President Barack Obama introduced ‘Obamacare’ which basically provides health benefits to people who do not have insurance. The Republican politicians do not believe in welfare and remain opposed to both these initiatives of the Democrats as they believe that such benevolence is counterproductive.

How the pension limits were challenged

In the initial years of Pakistan, the upper ceiling of pensions was notified, for example, for the National Bank of Pakistan it was fixed at Rs 650 per month. Several other departments had different ceilings. These limits were helpful in planning and organizing pension payments.

Then the courts jumped in, limits were challenged and exceeded without back-up coverage. The entire system is now in free fall and has become unbearable. I remember in the not too distant past, weddings that were incomplete without the stand-up comedians (bhands), there used to be long dialogues about gratification (wadai) on the birth of a child.

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Finally when the amount was settled the receiver asked where would he get the money from, while the payee replied where would he pay from and the entire matter ended in laughter. We are in a similar situation: while the demand keeps rising there is no money in the kitty to pay. It may have a sad ending as it is not an act of comedy performed on weddings.

Dr. Farid A.Malik is the Ex-Chairman Pakistan Science Foundation. (Fr. General Manager PITAC, Process Engineering Manager Intel Corporation Engineering and Management Consultant). An expert on mining and energy, currently working on developing clean Coal Technologies for Thar Deposit. He was a Shadow Minister PTI and Co-Ordinator of the PTI Think Tank where the framework of the Welfare State was developed. The article was first published in Pakistan Today and has been republished here with the author’s permission. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.