In a bid to control the rising pension bill, the government is considering reducing the average retirement age by five years, from 60 to 55, according to a report by a private news channel. A senior government official revealed that this proposal aligns with suggestions from the International Monetary Fund (IMF) and is under active consideration by federal authorities.
This move comes amid ongoing debates about increasing the retirement age for certain positions. Last year, the Ministry of Finance proposed raising the retirement age to 62 to delay pension expenditures temporarily. However, the Establishment Division opposed this proposal. Currently, government employees retire at 60, receiving pensions equal to their last basic salary, with some cases tied to a maximum of 30 years of service.
If the retirement age is reduced by five years, pension payouts could decrease significantly, potentially saving the government up to PKR 50 billion annually. The plan may be implemented gradually to manage the initial financial burden. Furthermore, this measure could facilitate the transfer of experienced and skilled public sector employees to private sectors.
The Growing Pension Burden
The federal pension bill has exceeded PKR 1 trillion, comprising PKR 260 billion for civil pensions and PKR 750 billion for military pensions. To manage this escalating expenditure, the government recently introduced a contributory pension scheme for future employees. As part of this transition, regulatory authorities and professional councils will be required to lower the retirement age of their employees, relieving the federal government from bearing the cost of retirement benefits. These entities would have to finance retirement packages through their resources or external arrangements.
Sources from the Ministry of Finance stated that reducing the retirement age would have a positive impact on the pension budget by lowering overall liabilities in the long term. Early retirements could save costs as the number of years for pension payments would decrease.
Challenges and Potential Risks
The proposal, however, is not without challenges. Reducing the retirement age may increase upfront expenditures due to early retirement benefits, potentially offsetting some of the projected long-term savings. It could also result in the loss of experienced human capital, affecting productivity and efficiency in government departments. Additionally, social security systems could face added pressure.
Regional Comparisons and Recommendations
In countries like India, Malaysia, Indonesia, Thailand, the Philippines, Sri Lanka, and Brunei, retirement ages generally range from 55 to 60. Policymakers aim to balance the need for cost savings with the potential impact on workforce dynamics.
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