SBP recommends increase in retirement age to cut fiscal burden

KARACHI: The State Bank of Pakistan (SBP) has recommended an increase in retirement age in order to reduce the average coverage period of retirement benefits.

“The increase in the level of standard pension age may reduce the average coverage period of retirement benefits,” the SBP said in a report issued the other day.

The pension system follows two eligibility criteria for retirement: the qualifying service of 25 years and the threshold of 60 years of age. Interestingly, most of the employees in federal, provincial and defence service join their departments in early- to mid-twenties, and complete 25 years of services during their early- to mid-50s and therefore become eligible for early retirement.

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It is pertinent to mention that the retirement age of 60 years is already markedly lower than many other countries, and so the early withdrawal after completion of qualifying service puts further strain on fiscal sustainability of pension expenses.

In this regard, the increase in level of standard pension age may reduce the average coverage period of retirement benefits. In addition, the delayed retirement age will support in increasing the contribution period once the government opts for a funded system in the subsequent round of reforms.

The SBP also suggested rationalizing the survivorship benefits. The first and foremost reform should be to exclude all family members other than minor children and widows from the list of eligible survivorship beneficiaries.

Any delay in such reform will cause family pensions to grow manifold in the coming years due to the probable increase in time span of pension benefits in each individual case. In the case of widows, the survivorship benefits can be rationalised in accordance with the increasing labour force participation rates of women.

The SBP said that the computation of commuted benefits involves a particular factor assigned to each year after retirement which determines the advance payment amount for each retiree.

The commutation table laid out by the Ministry of Finance incentivises early retirement with excessively high commutation factors applied to the younger cohort. This is in stark contrast to the traditional pattern followed in most other countries.

For example, in the UK, the commutation facility is only offered to retirees after attaining a certain age for different employee groups (48 years in the police department, for example), whereas the Indian pension structure offers minimal variance in commutation factor to different age groups. The growing fiscal burden due to high commutation expenses calls for a restructuring of the commutation mechanism, with rationally designed factors and revision in eligible age profile to make the overall pension structure actuarially fair: the lifetime benefits enjoyed by those who retire early or choose to avail commutation and those who opt out of such facilities.

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16 COMMENTS

  1. It’s just a recommendation of heavily paid bureaucratically designed employees enjoying perks and privileges who wish to prefer direct flight in grave from their parent lucrative positions. Whereas low paid serving people have serious reservations on salaries in govt sector in lieu of longevity of hours from 9.00 to time of departure at will of superior/Boss.

  2. Cut the number of employees in government sector by 50% the efficiency will go up by 50% and expenditures will come down by 501% because of overstaffing in this sector. This what the empirical data shows.

  3. Instead of affecting the poor segme nt of the society by changing the pension rules, the leakages in public spending and development funding should be plugged at all cost which has reached unbelievable proportions during the last twentyfive years or so. I thing this is the most sincere and honest way of footing the pension and all other bills.

  4. I’m a govt emp directly effected by this proposal. Pension is a part of salary being deducted from the start of the service. Once you deducted, its good for your health and at the end, once you have to return, it cramps your stomach and Govt say as heavy burden on budget. Why you not say heavy contribution in budget once you deducted pension from emps salary??? This is a hypocritical approach to resolve or cover mishandling of pension account at the part of Govt, HO! Sorry, MADINA KE RIYASAT.

  5. You loose lambs guarding your fatherland and unable to eatn livlihood than state say we can not sustain your pension burden. Have God fear, aid agencies are now trying to term pension as time bomb for their nefarious drsigns. State should introduce efficient financial measures. Reduce corruption and inefficient tax system. Pensions are just 7% of GDP.

  6. Jin logo ki service 10 years se ooper ho chuki hay un ko lumpsum de ker farigh ker dain.jo paisay golden shake hand se un k paas aayen ge wo national saving main deposit ho jayen ge.is tarha govt k paas betahasha paisa aa jaye ga.pension b nahi daini paray gee.ye kaam jaldi se jaldi hona chahye nahi to mulk ka bera gharak ho jaye ga.

  7. Pension is a part of salary being deducted from the start of the service. Once you deducted, its good for your health and at the end, once you have to return, it cramps your stomach and Govt say as heavy burden on budget. Why you not say heavy contribution in budget once you deducted pension from emps salary??? This is a hypocritical approach to resolve or cover mishandling of pension account at the part of Govt. Pension is not a gift from Govt. Its just the money of employee which govt deducted during service and at the end and give the some money in shape of commute and other in the shape of pension. And govt. Use the money of employees like banks’ fix deposits.

  8. Major pension funds reforms need to be started from armed forces. As 76 percent pension bill is of retired armed forces personnel. A jawan sepoy retire at the age of 40 and a major retire at the age 45 years. Both get pensions uptill the age of 80 years approximately.
    Service length for the pension eligibility needs to be increased to at least 33 to 35 years of regular service.

  9. The recomendation is good and will be beneficial in:
    – Employee invested fund early encashment.
    – Early age retired people taking posts much required for young graduates.
    – Long term cost saving on account of medical and pension for people not in service and retired in early age.
    Retirement age should be 62-65 years or 30 years of services for forces.

  10. Why government does not reduce the herd of ministers and spoke persons who are more than 50. Why they do not reduce the salaries of parliamentarians. Why they do not curtail the expenditure on expensive vehicles for protocol of ministers. Why they do not stop giving free air tickets ministers, parliamentarians and families etc etc. why only poor government servants governments and pensioners are the main torget of of the government. No one considered this type of ideas. it is only this government with false slogens of riasat e Madeena. sorry to that.

  11. Rationalize the employment in government and armed forces sector, rationalize the perks and benefits of high salaried officials, this whole thing will sort out by itself.. They r the real burden on pension. Do not penalize the poor awam and do not penalize the new generation.. if the oldies do not get retired on time where will the younger ones find the jobs?

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