The pension balloon

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The government’s pension reforms include a welcome proposal to rationalise payments, including eliminating the payment of multiple pensions, which was becoming increasingly expensive and had always been questionably ethical.

While Finance Minister Ishaq Dar was reportedly pointing at the late former president and army chief, General Pervez Musharraf, when he made comments regarding somebody receiving three pensions, under the right circumstances, many people could often be eligible for at least two government pensions, and in a few rare cases, four or more. In fact, if they go on to serve in elected office, that is another pension. This is because military pensions, bureaucratic pensions, and parliamentarians’ pensions are untied, meaning that a member of the military who retired and became a CSS officer would get two pensions upon retirement. If their spouse had a similar career path, upon one partner’s death, the survivor would be receiving four pensions. If elected, more pensions would be paid out.

This is rare in other countries, where multiple forms of government service are clubbed together for pension purposes and usually only reflected in seniority calculations. There are also several cases here where people take early retirement and begin collecting pensions while working full time in the private sector. Many countries place restrictions on such pensioners, only allowing them to receive payments after they actually stop working or hit retirement age. Others may allow payments at a reduced rate based on their private sector salaries and whether they work part or full time. Pension payments to dependents will also be capped at 10 years after the death of a pensioner and their spouse, which will help stop pension abuse.

The transition to contributory pension funds was also necessary, as the current unsustainable model had led to astounding bloat. Also, the government can still pay into a contributory model if necessary, but if well operated, such a pension fund can quickly become self-sustaining.

Published in The Express Tribune, June 27th, 2023.

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