Problems with pensions

The current review is IMF-prompted

Pensions were one of the new concepts introduced in the Subcontinent by the Raj. Along with timely payments of salaries, the idea of retiring its servants and then paying them a pension for the rest of their lives was a mouth-watering induction, one which made a government job so attractive. Then there are the payments made to widows and then to minor children. Then there were commutations, where on retirement, the pensioner would draw his pension in advance, and not receive it for some time. This was funded by deductions from salaries which were invested and used to pay present pensions. Any shortfall was to be made up by the government. This was one of the holes in the government’s finances, as generally there was a shortfall to be made up. It was almost inevitable that the IMF would latch onto pensions as an area demanding reform. Therefore the present effort at pension reform is not really prompted by a desire to improve the attractiveness of government service, as a desire to cut costs. Indeed, even that is a worthy motivation. What really drives this is the desire to curry favour with the IMF. One result is that there is no ownership in government circles of pension reform, and thus there is the danger that the very fabric of government service, whether civil or armed, might unravel.

One of the more controversial proposals is that commutation would entail a reduction in the overall pension. Further increases in pension are limited to a maximum of 10 percent, and linked to the CPI. The medical facilities afforded to pensioners have not come under scrutiny, but that is only a matter of time. With pensioners being of advanced age, and thus subject in large numbers to chronic diseases, their need for medicines is expensive. It is only a matter of time before these are examined.

What makes matters worse is that there is no old age pension, and for many government servants, that pension is the only provision they have for their old age. The possibility that saving money on pensions might lead to enhanced corruption among government servants trying to provide for their old age, does not seem to have been considered. Pension reform is an essential, but not enough thought seems to have into it, certainly not by the IMF. It should be carried out as part of a rethinking of government service, rather than as a cost-cutting measure to make the IMF happy.

The Editorial Department of Pakistan Today can be contacted at: [email protected].


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