October 16, 2006	Monday	Ramazan 22, 1427

THE mounting pension burden has become a difficult problem for many countries. The rich industrial states are troubled by the problem and the developing countries like Pakistan are also affected by it.

The problem is made more complex by the longevity of life. People live far longer than before, particularly in countries like Japan and Scandinavia. And they have to be paid pension for a far longer time than before and that weighs heavily on the national budget.

As modern medicine makes rapid progress with new discoveries all the time, new remedies are become more and more costly for countries with too many elders. The National Health Service of such countries is getting to be more and more expensive, while the governments are trying to lighten their financial burden.

In Pakistan, retired employees live far longer than before and expect the very latest treatment for their ailments. We have even now three ex-presidents eligible for health care.

Former US president Bill Clinton and several other humanists are trying to get the prices of some of the very costly medicines for diseases like HIV reduced, but the task is proving to be exacting.

Like anyone else, the elders have also higher expectations from life in their old age because of the social and cultural changes. They expect their pensions to cover such needs as well.

The governments have to meet such rising expectations of their senior citizens at a time when there is immense pressure for tax reduction and low budget deficits. But the governments cannot afford to ignore their elders as they are voters as well. At the same time the taxes have to be cut to win elections. Balancing such large benefits with such lower taxes is a tough exercise for the finance ministers.

Hence US President Bush has been not been able to finalise his pension policy even after six years in office.

In Pakistan, three years ago the pension burden of the military, then at Rs28 billion was shifted to the civilian side so that the military expenditure wouldn’t look too large. Lately, there have been unconfirmed reports that the military pension is being shifted back to the defence for the sake of accounting propriety. Is that really being done?

While it is known that over four million persons are employed with the central, provincial and local governments, the number of the retired receiving pensions from the three sources is not known.

In the Asian countries, the pension has become more important following the break-up of the joint families. Now too many elders are on their own and a second job is not easy to find. When such elders live on their own on their pensions, that small income becomes too important; hence the pension has to be adequate unlike what is available now.

In the developing countries including Pakistan there is excessive corruption in the departments dealing with pension. The officer who gets his first pension a year after his retirement is lucky. There are teachers who have not got their pension even three years after retirement in Sindh. The superior courts have passed strictures against such accounting practices, but that has resulted in very small improvements.

This is an area where urgent reforms are essential. The reforms should not only be promulgated but even effectively enforced and deviant officials punished.

Pensioners are among the hardest hit by inflation.. They have no additional income or second jobs. Some of them have in total desperation committed suicide.

The government does increase the pensions from time to time. The percentage of the increase is more for the earlier retired as they get too little pensions and less for the recently retired whose pensions are larger. But the overall increase is too meagre and disproportionate to the rise in inflation usually in double digits. If the sharp rise in inflation cannot be checked, the increase in pension should be made larger.

Inflation in most developing countries is under-stated. That is because of the formula adopted for calculating inflation. Real inflation in Pakistan is usually far higher than the official or statistical figures show.

The pension burden of the government becomes heavier as it is the official policy in the centre and the provinces to provide employment to persons as a matter of state obligation. When such persons retire, the pension burden becomes too heavy.

Now senator Enver Baig is upset that the large savings of the Employees Old Age Benefit Institute have been invested on the stock exchange without a government guarantee to the workers to compensate them if the stock exchange suffered a setback or a crash.

The Institute had invested on shares of 18 companies worth Rs16.976 billion. They bought shares of mostly good companies like OGDC, PSO, Shell, PPL, National Bank of Pakistan, Unilever etc. It sold shares worth Rs15.42 billion. The capital gains in terms of portfolio transactions was Rs1.039 billion and the dividend income was Rs851 million and the closing balance was Rs9.423 billion in 2005-06.

As a member of the standing committee of the Senate on finance, Mr Baig is agitated by the report of the auditor- general that the EOBI has lost Rs2.2 billion in 20 investments. That included blockage of capital owing to ill planned investment of Rs1.4 billion in plots and an investment of Rs438 million in violation of investment rules.

The EOBI Chairman informed the standing committee about the loss of investment. He also said the investment of shares was made when Mr Shaukat Aziz was the finance minister and that appears to have been done without a formal policy decision and without a public announcement though the hard earned savings of the workers were involved.

Mr Baig now wants the EOBI investment on shares withdrawn and the money re-invested in any scheme with 100 per cent government guarantee.

This is not the first time the EOBI produced a scandal. It had several other negative reports earlier and the time has come to put the institution on a sound basis.

No doubt, in the West very large pension funds are invested in shares and other investment instruments of major companies, but that is done through well- known investment companies who do not use such funds for speculation.

But in the case of the EOBI, it entered the stock market without any change in official investment policy. Of course, the EOBI funds should be invested to earn decent profits, but it should be within secure limits so that the workers do not lose their savings.

In fact, there should be open discussions on how and where the pension funds as a whole are invested to earn decent profits.

When inflation is eating into such deposits their purchasing power will constantly go down unless such funds are judiciously invested to earn profits which can negate inflation to the extent possible.