Sustainable Pension Reforms

Sustainable Pension
Reforms

The pension bill had grown from 3% of the provincial budget in 2009-10 to 10% in 2019-20 – a tenfold increase over a decade. This amount will grow to 18% of current expenditures by 2022-23

Pension liabilities

OVERVIEW

Pension liabilities are a growing burden on the provincial budget for the GoKP. The pension bill had grown from three per cent of the provincial budget in 2009-10 to 10 per cent in 2019-20 – a tenfold increase over a decade. This amount will grow to 18 per cent of current expenditures by 2022-23, further reducing the government’s fiscal space for development.

Globally, private- and public-sector entities are moving away from a multi-layered retirement benefit systems for employees. The GoKP has also introduced policy measures in this regard, including multiple changes in Pension rules and has announced that new employees joining from July 2021 will be hired under the defined-contributory pension scheme.

Advocacy on pension reforms

Progress

SEED is providing advocacy support to GoKP on pension reforms by conducting quarterly webinars with GoKP stakeholders, researchers, academics and practitioners and by preparing policy notes on highlighted recommendations and reforms.

Click here to Watch Webinar

SEED has supported KP in becoming the first-ever province to roll out a fully-funded and sustainable pension scheme successfully.

KP's Finance Secretary briefed administrative secretaries on the features of KP's new Pension Scheme applicable to newly recruited employees.

KP Finance Minister discussing Defined Contribution Pension Scheme with Pakistan's top fund managers.

Besides advocacy, SEED also supported GoKP in revision of the pension rules for the legacy Defined Benefit Scheme. Moreover, it is also supporting the design and implementation of the Defined Contribution Pension scheme for government employees joining after July 2022. Khyber Pakhtunkhwa will be the first province to transition into a fully-funded Contributory Pension scheme. The new scheme will decrease the pace of accrued liabilities and enhance the long term fiscal space for development.

This move to introduce contributory pensions for new employees will help ease budgetary challenges and safeguard the pensions of government employees. The introduction of DCS could save GoKP PKR. 700B over the next 30 years or $4.3B (GoKP White Paper 2020/21 Budget). Likewise, revision in existing pension rules has resulted in potential savings of PKR 12B over the next 10 years and change in the minimum retirement age for early retirement has resulted in potential savings of PKR 124 B over next 10 years.