Punjab changes pension regime to save Rs59.1bn in three years

Updated 02 Jul 2020

Email

Cabinet has approved changes to minimum voluntary retirement age. — Dawn/File
Cabinet has approved changes to minimum voluntary retirement age. — Dawn/File

LAHORE: The changes in the minimum voluntary retirement age (MVRA) and pension rules for provincial government employees are projected to save Punjab a cumulative pension expenditure of Rs59.1 billion over the next three financial years through 2020/23.

The provincial cabinet had approved the changes in the retirement age in its meeting held on June 15 to approve the budget for the present financial year.

The modifications in the retirement and pension rules were suggested by a cabinet committee formed to examine the pension regime in the province under finance minister Makhdum Hashim Jawan Bakht. The objective is to reduce the growing burden of the provincial pension bill and create fiscal space for development and other necessary expenditure.

After changes, the minimum voluntary retirement age has been increased to 55 years or 25 years of service, whichever is later.

Cabinet has approved changes to minimum voluntary retirement age

“These changes are expected to bring about substantial fiscal space on account of deferment of pension-related expense by reducing the number of early/voluntary retirements,” according to the 2020/21 provincial budget documents. The savings are projected to be close to Rs20bn this year, Rs20.6bn next fiscal and Rs18.5bn in the third year.

According to official data, the trend of seeking early voluntary retirement amongst the provincial civil servants is on the increase for several years, adding significant burden of pensions on the budget. For example, the employees up to 55 years of age seeking early retirement has grown from 26.8pc of the total 31,245 retirees in the fiscal 2017 to 39.6pc of the 26,889 retirees last financial year.

Punjab’s pension expense has increased at a compound annual growth rate (CAGR) of 24.1pc between 2011 and 2019 from Rs36.4bn to Rs205.1bn. In other words, the pension bill rose from 9.8pc of the provincial current expenditure to 16.7pc during this period. This is despite that the overall current expenditure of the government has gone up by 16.2pc, slightly slower than its pension liabilities. The pension was 6.7pc of the province’s revenue receipts in 2011 and 14pc in 2019.

Punjab’s pension liability, the current budget documents say, was estimated to be Rs237.2bn last fiscal year and is projected to rise to Rs250.7bn this year.

The government fears if its pension expenditure continues to grow in this fashion, it will constrain its fiscal space for other current and development expenditure in future. Between 2011 and 2019, the salaries of government employees have increased by compound annual growth rate of 13.2pc and pensions by 11.5pc compared to 6.2pc growth in inflation.

Published in Dawn, July 2nd, 2020