A Critical Review of the Exponential Growth in Pension Liabilities and their Unsustainable Nature: Concerns, Difficulties and Potential Solutions
Abstract
Pension signifies periodic expenditures granted by the government to those who have ceased working, as well as to their close relatives. This mechanism functions as a societal safeguard in nations that have welfare states. However, pension obligations have become a significant challenge for governing bodies worldwide, requiring careful management due to their increasing size and economic consequences. The purpose of this review article is to analyze and address the challenges faced by the Government of Khyber Pakhtunkhwa (GoKP) in efficiently managing the growing pension responsibilities. The issue of pension liabilities requires the attention of policy makers and the implementation of robust reform agendas to ensure the long-term viability of pension payments. The pension system for civil servants in Pakistan is completely non-contributory, underfunded, and currently suffering from a concerning lack of management. Within the Government of Khyber Pakhtunkhwa (GoKP), the pension obligations have surged by a factor of 7 over the previous decade, escalating from 11 billion rupees in the fiscal year 2010-2011 to 92 billion rupees in the fiscal year 2021-2022. The Government of Khyber Pakhtunkhwa (GoKP) provides retirement benefits to its civil officials through four schemes: Defined Benefit Pension, General Provident Fund (GPF), Retirement Benefit and Death Compensation (RBDC), and Benevolent Fund. The main aim of this study is to clarify the proposed model. The proposed measure seeks to reduce the length of time during which individual retirees and their families receive pension benefits from 40 years to 15 years. The objective is to reduce the pension liability of the Defined Benefit scheme by 2063-64, rather than 2087-88, by the implementation of the proposed parametric adjustments. To address the impending pension issue in Pakistan, it is crucial for the government to expeditiously enforce remedial actions. The government should consider the findings of this research study in order to efficiently handle the burden of the current DB scheme and promptly reap the benefits of introducing a DC system for new employees. It has been concluded that the shift from a defined benefit to a defined contribution system would only be feasible for newly hired employees.
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