PESHAWAR: The salary and pension budget of Khyber Pakhtunkhwa is likely to total Rs470 billion in the next fiscal, officials say.

They told Dawn that the province’s pay bill in the financial year 2023-24 was likely to be around Rs350 billion and pension’s around Rs120 billion.

The officials said that the provincial government, in order to arrest the galloping pension bill, introduced last year a “contributory pension scheme” for its employees.

“We need to consolidate reforms and stay the course,” a senior official said.

He said there wouldn’t be enough money to pay for development if the reforms were reversed or tempered with.

Contributory pension scheme adopted, say officials

The official said that Pakistan was the only country in the region with such a generous pension system as other nations had gone for the contribution-based pension system, which was more sustainable and adequate.

Meanwhile, a government report pointed out that KP government’s contributory pension scheme had the potential to be sustainable, consistent and adequate, meeting the essential requirements for a successful pension system.

It said that the contributory pension fund scheme had been successfully adopted across the province with over 30,000 employees enrolling in the programme.

“Noteworthy features of the scheme include a 10 per cent deduction from employees’ current basic pay and a 12 per cent matching grant provided by the KP government,” it said.

The report said that a 2020 actuarial valuation conducted by the KP finance department showed that the current accrued liability up to June 2020 for active employees and pensioners was estimated at Rs2.9 trillion with the projected pension expenditure reaching Rs2.05 trillion by 2050.

“The present value of this amount is approximately Rs462 billion, which accounts for around 33 per cent of the 2023-24 budget. This raises serious concerns about the sustainability of the pension system in future,” it said.

The report said that when evaluating pension schemes globally, three key parameters, including sustainability, consistency and adequacy, were often considered.

“A scheme that performs well in all three aspects is deemed highly effective and therefore, it is important to assess whether the new pension scheme implemented by the KP government will meet these criteria,” it said.

The report said that in terms of sustainability and consistency, the actuarial projections for the scheme indicates positive results.

“The projected financial burden on the government until 2050 is estimated to be Rs205 billion, with a present value of Rs9 billion, which is less than one per cent of the 2023-24 budget,” it said.

The report also said that the scheme was sustainable and its impact on the government’s finances was manageable over the long term.

It said that an actuarial valuation conducted for Khyber Pakhtunkhwa regarding adequacy revealed promising results.

“If an employee contributes 25 per cent of [his/her] basic pay over a 35-year service period and a real rate of return of four per cent is assumed, the replacement rate at the time of retirement is projected to be 74 per cent,” it said.

Published in Dawn, May 28th, 2023