Pension reform is now essential. It is now, at Rs 1.014 trillion now the fourth largest component of the Budget after interests payments, defence and development. It is also within the crosshairs of the IMF. However, the Economic Coordination Committee of the Cabinet decided not to touch the benefits of existing government employees, and to make the changes it approved applicable only to new recruits. There was also approval for the pensions to become contributory, rather than be based on last pay drawn, for civilian employees from next July, and for military employees from 2025. The fund is to come from the savings on pensions, estimated to be about Rs 4 billion in the first year, or 0.4 percent of the total spending. Pension reform will prove a long process, especially if government employees have their benefits locked in.
Of course, there are bound to be conflicts. The Establishment Division wanted the retirement age increased to 62, which is a proposal the services could not accept, because military personnel have to maintain a minimum level of fitness, and an efficacious way of doing so is to retire personnel early. This has created the issue of two pensions, family pensions, and other such issues. The cost of pensions is not made to include the benefits which pensioners and their families enjoy, mainly in healthcare. The ECC will get back to the pensions issue, despite the Establishment Division and the armed forces fighting a rearguard action to preserve the status quo, mainly because the IMF is not clear why so much money is going to people who are not government employees, when that money would better go on debt servicing.
If the matter is to go before the courts, it will be impossible to find judges without a personal interest, as all are future pensioners. However, the ECC must not allow this to cramp its style. Ironclad pension systems are the result of agitation by the civil service unions in the West, as well as the harrowing experience of the Great Depression of the 1930s. There is every danger that pension reform may be stymied by the same safety-first attitude now that young people are entering the job market in ever-increasing numbers, even as the economy fails to create jobs.
