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The Pakistani government is considering reducing the retirement age for government employees to 55 years, in line with a suggestion made by the International Monetary Fund (IMF) to address the growing pension bill. This proposal, currently under consideration, could help the government manage the long-term costs associated with pension payments, which have become a significant financial burden.
As per a report published in a local English newspaper on Monday, a senior government official confirmed that the IMF had recommended this measure, and the federal government is evaluating its feasibility. The move comes as part of broader discussions around retirement age. Last year, the Finance Ministry had proposed raising the retirement age by two years, from 60 to 62, to temporarily reduce the strain on pension payments, but this suggestion faced opposition from the establishment.
Currently, government employees retire at 60, with pension benefits equal to their last basic salary or after a maximum of 30 years of service. The proposed reduction of the retirement age to 55 would result in a reduction in the overall pension expenditure by up to Rs 50 billion annually if implemented across all government institutions.
A meeting of the Economic Coordination Committee (ECC) chaired by Finance Minister Muhammad Aurangzeb recently raised concerns about the delay in implementing reforms to the pension scheme. The government has yet to act on directives issued earlier this year regarding pension amendments. Detailed consultations with various stakeholders are still underway.
The proposed change could reduce pension payments, as employees retiring earlier would shorten the number of years they receive pension benefits. However, the implementation of this policy would likely require careful planning due to the initial financial burden it could create. The government is considering a phased approach to the policy, which may also help facilitate the movement of experienced government employees to the private sector.
At present, the federal pension bill has surpassed Rs 1 trillion, with Rs 260 billion allocated to civil servants and Rs 750 billion to the armed forces. To help control the rising pension costs, the government has already introduced a contributory pension scheme for all new government employees.
The government is also exploring the legal and financial implications of implementing such a scheme for federal employees, with plans to involve provincial governments and other regulatory bodies. If the retirement age is reduced, these agencies would be responsible for managing the financial needs of retiring employees, without relying on the federal government to cover pension costs.
While reducing the retirement age could lead to savings in pension expenditures in the long term, there are concerns about the immediate financial impact. The upfront costs of severance packages and retirement benefits for those retiring early could offset some of the potential savings. Additionally, a lower retirement age could result in a loss of experienced personnel, which may affect the efficiency and productivity of the public sector workforce. Furthermore, the broader impact on the social security system is also being assessed.
