PESHAWAR: After starting deductions from the salary of its new employees for the ‘contributory pension’ scheme launched for them lately, the Khyber Pakhtunkhwa government has directed its all departments to open accounts of those staff members with asset management companies to claim better profits.

In the last fiscal, the government, in a bid to check the province’s rising pension liability, had decided to replace the existing pension programme funded by it with the defined contributory pension system for new employees.

The decision came in light of an amendment to the KP Civil Servants Act 1973 and Contributory Funds Rules, 2002.

According to a letter written by the finance department to the administrative secretaries of all departments, the new pension system has been launched for those who joined government service in the province on or after June 7, 2022, and they, as a stop-gap measure, will be covered by a single profitable account at the Bank of Khyber.

Orders opening of their accounts with asset management firms for better profits

It, however, said since the account with asset management companies was more profitable for employees compared to the Bank of Khyber, all those employees should be conveyed to open an account with those firms (funds managers) registered with the Security and Exchange Commission of Pakistan.

The letter said the representatives of asset management companies would approach departments for account opening.

Under the KP Contributory Provident Fund Rules, 2022, both the employer and employee will contribute to the pension fund at the ratio of 1.2:1 in which the employer will contribute 12 per cent to the pensionable pay to the account and the employee 10 per cent. However, the employeecan pay more than the fixed amount.

The rules declare that the employers’ contribution to the contributory pension fund will be in addition to the salary otherwise payable to the employee. Besides, the employee contribution will also be deducted at the source by the employer at the time of payment of salary.

In addition, these employees will have the option to choose a conventional or Sharia- complaint fund.

In May this year, the provincial government had legislated to do away with the government- paid pension and gratuity scheme for its future employees and decided to introduce a contributory pension fund.

The move was meant to arrest the province’s galloping pension bill, which, according to budget documents, totals Rs107 billion in the current fiscal with Rs1 billion pension liability of employees from tribal districts.

The documents show that the provincial government wage bill was projected to grow at the rate of 24.6 per cent during the current year.

A document read, “With the trend continuing, salaries and pensions would surpass all provincial receipts in 2027. Pension is one of the major expenditures for the provincial government, making up around a quarter of wage bill.”

It added that the significant rate of increase came at the cost of squeezing the development budget and critical non-salary and service delivery expenditure.

Besides introducing the contributory pension schemes, the KP government has also increased the minimum age for the early retirement to 55 years eyeing an annual saving of Rs12 billion. It has planned to save Rs1 billion through the revision of pension rules.

Published in Dawn, November 18th, 2022