ISLAMABAD: Pensions are a major problem for the country's economy as they are funded from the budget instead of through a fund with contributions from the government and the employee which may be invested to meet future pension liabilities.
This was the consensus between Former finance minister Dr Salman Shah and former Punjab Finance Minister Ayesha Ghous Pasha while speaking at Aaj TV program 'Paisia Bolta Hai' with Anjum Ibrahim.
Dr Shah elaborated that the pension fund may be invested in development projects under public sector development programme with high economic and internal rates of return or with an expected revenue stream; while Dr Pasha stated that projects in PSDP are not usually in high return projects adding that the fund portfolio must be in risk-free investments.
Dr Shah concurred and regretted that development projects in the country did not have any rate of return, cash flow.
Shah further stated that "we need to look at this issue otherwise the bubble would burst and in coming years an ever larger portion of the budget would have to be set aside for pensions. We need to undertake a basic revamp of the entire pension system."
Dr Shah added that if a dam is built with the pension fund it would result in earnings and cited the example of New Zealand where the government diverted pension funds in various project till maturity of such funds. "The government can effectively utilize pension funds for the development of the country. If development budget is routed through the pension fund, the revenue generation from projects could be used to meet the future pension liabilities" he said.
Shah said that there is no immediate solution to the problem of pension liabilities and burden would have to be gradually off set over a period of time. In the meantime, a funded program could be chalked out for investment in other projects.
The State Life Insurance has real estate buildings in different cities and they are earning a lot of revenue from these building, he added. Pakistan is a developing country and there are a lot of opportunities for investment and development through pension funds.
Aysha Ghous Pasha stated that the pension fund would be public/trust money and the government has no right to use this money in an irresponsible manner.
The pensions must only be invested in financially viable development projects like power projects with guaranteed rate of returns. The Fund must be properly managed.
Dr Pasha suggested that new recruitment should be done in a way that no commitment is made which would be difficult to fulfill.
She added that a calculation on pension liabilities conducted by the Punjab government during Pakistan Muslim League (N) government disclosed very glaring numbers with regard to pension liabilities.
The Punjab government set up a fund of Rs 40 million but this was too little as the scale of the problem was huge, maybe as high as Rs 3 trillion.
She added that without full backing by bureaucracy and political leadership, revamping the system would not be possible and suggested that "we have to take some tough decisions as was done by India with - contribution by the employees and employers".
Copyright Business Recorder, 2020
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