THE government is reportedly considering a proposal to reduce the average age of superannuation by five years to 55 as its long-term unfunded pension bill becomes increasingly unsustainable and outgrows expenditures on the federal public development programme. The proposal is said to have been put forward by a multilateral agency as part of wider pension reforms being rolled out by the government for the past couple of years. Previously, the authorities were contemplating an increase in the retirement age by two years to 62 for the same purpose; it is now mulling over early superannuation. However, it is not clear if the new proposal is backed by solid research and data in our context. Early retirement is expected to reduce the overall pension payout in the longer term as these benefits are worked out on the basis of the last drawn basic salary at the time of retirement. Nevertheless, it goes without saying that the application of an early retirement age in the armed forces has produced quite the opposite results.

The proposal, according to a report in this paper, is not without its drawbacks. Its implementation could lead to an increase in upfront costs due to a larger number of early exits in the form of severance costs or retirement benefits, which may offset some expected long-term savings. That said, the importance of extensive pension reforms cannot be overstated. The annual federal pension bill — civil and military — has grown by an average 19pc from Rs245bn in 2018 to an estimated Rs1tr. It includes an approximate civil and armed forces share of Rs260bn and Rs750bn respectively for the current fiscal year. This burden on the budget is now projected to double every four years, a trajectory that is unsustainable. Over the last decade, the federal pension expenditure has surged nearly 4.4 times in contrast with the 2.7 times increase in the operational expenses of the civil government. The provinces and state-owned enterprises are facing a similarly dire challenge. The rapid rise in pension liabilities demands an urgent fix to not only slow down future growth of the liability but also for a solution to the existing one. Even though the centre and the provinces have taken some initiatives in this direction, they still appear generally clueless about how to tackle this fiscal problem on a sustainable basis.

Published in Dawn, December 3rd, 2024