Mooaz Manzoor

Experts emphasize that pension reforms are essential to curbing unsustainable liabilities and strengthening public finances, but their success depends on prudent investment strategies, transparent governance, and long-term sustainability.

Speaking with WealthPK, Syed Ali Ehsan, Deputy Executive Director at the Policy Research Institute of Market Economy (PRIME), highlighted that the government’s pension liabilities, previously paid directly from the consolidated fund, had become economically unsustainable. Such a funding mechanism created significant fiscal stress and posed risks of social unrest if the pension obligations were not met, he explained. This system, Ehsan noted, could lead to undesirable income redistribution and political instability.

The government has prioritized pension reforms under the National Transformation Plan to address these challenges. The plan includes establishing a dedicated pension fund for government employees and promoting private pension schemes to diversify risk and reduce the state’s financial burden. Furthermore, specific measures targeting new government employees must be introduced to ease the strain on future liabilities. Economist Shahid Mehmood echoed these concerns, emphasizing that pension reforms had been overdue for at least a decade.

He noted that successive governments delayed decisive action due to political and economic inertia. However, the ballooning fiscal bill, which had reached unsustainable levels, ultimately forced the current policymakers to prioritize reforms. Mehmood acknowledged the significance of these reforms but pointed out that their immediate impact would be limited, as they mainly apply to the new entrants in the civil service. The existing liabilities, representing the bulk of fiscal burden, remain largely unaddressed.

Mehmood further emphasized the need for a robust and prudent investment strategy to manage pension funds effectively in a volatile economic environment. He warned that without clear safeguards and transparent governance, these funds could face significant risks, ultimately undermining the interests of employees. Unfortunately, he observed, the government appears lacking in a comprehensive plan for ensuring the security of pension investments – a critical gap that needs urgent attention. Both experts underscored the importance of balancing the fiscal responsibility with the employee welfare.

While the reforms signal a positive shift in policy direction, they cautioned sustained efforts and long-term planning were essential to achieving meaningful results. When implemented effectively, a reformed pension system can reduce fiscal stress, ensure timely payments to retirees, and foster trust in the government’s ability to manage public finances responsibly. However, these reforms might fall short of their intended goals without addressing the broader structural issues and ensuring prudent fund management.

Credit: INP-WealthPk