Professional Documents
Culture Documents
Reform of Retirement Benefits in Sindh, Pakistan
Reform of Retirement Benefits in Sindh, Pakistan
Sindh, Pakistan
By Fazal Karim Khatri
and
Michiel Van der Auwera
Disclaimer: The views expressed in this paper/presentation are the views of the author and do not necessarily reflect the
views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent.
ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any
consequence of their use. Terminology used may not necessarily be consistent with ADB official terms.
1
Overview:
• Background
• Key Interventions
• Way Forward
2
Background
• Government of Sindh employs 480,000
employees and counts 110,000 pensioners
• Two‐layered retirement system
– Pension: defined benefit scheme, providing
monthly pension equal to 2.33% of basic salary for
each year of service, paid from budget
– General provident fund: defined contribution
scheme, providing lump sum payment, requiring
contribution of 3‐8% of salary of civil servants
3
Background
Annual Pension Costs (in 2008‐09 Real Terms)
20.0
18.0
16.0
Lump sum
14.0 Pensions
Rs. Billion
12.0
10.0
8.0
6.0
4.0
2.0
-
09
11
13
15
17
19
21
23
25
27
20
20
20
20
20
20
20
20
20
20
Projected year
4
Background
•Sindh Pension Fund (SPF) created with seed
money of Rs 1.2 billion in 2002 and with
annual allocation of Rs 3 billion
•Current value: Rs 20.6 billion
•Sindh General Provident Investment Fund
(SGPIF) created with seed money of Rs 2
billion in 2007 and annual transfers of Rs 2
billion
•Current value: Rs 4.4 billion
5
Key Interventions
1. Financing Pensions and GPF
Challenges
•Weak governance structure of SPF and SGPIF
• Board of Directors decides on investment
• Investment unit’s only responsible for
operational and settlement activities
• No investment policy and investment
restrictions
•No financing strategy
6
Key Interventions
1. Financing Pensions and GPF
Sindh Fund Management House (SFMH), a
single entity managing government funds, to
improve governance structure of various
investment funds, including
• SPF (value: Rs 20.6 billion)
• SGPIF (value: Rs 4.4 billion)
• Sindh Social Relief Fund (Rs 11.3 billion)
• Sindh Viability Gap Fund (Rs 3 billion)
7
Key Interventions
1. Financing Pensions and GPF
Proper governance structure is essential to
support long‐term investment performance
– SFMH Act is under preparation separating responsibility of
Board of Directors, Investment Unit and oversight
– Board of Directors: goal setting, ultimately responsible –
small board comprising ex‐officio and investment
specialists from private sector
– Investment Unit: daily management – chief investment
specialist, investment research analyst and accountant are
being hired from the private sector
– Oversight: same regulatory framework as private pension
sector plans
8
Key Interventions
1. Financing Pensions and GPF
Financing strategy required to specify when to
use accumulations to meet benefit payments
9
Key Interventions
1. Financing Pensions and GPF
Government’s current GPF financing policy
750
600
Gross GPF liability
SGPIF value
450 Net GPF liability
Rs Billion
300
150
0
09
11
13
15
17
19
21
23
25
27
29
31
33
35
37
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Projection Year
Key Interventions
2. Improve recordkeeping and service delivery
Reliable recordkeeping is required to manage
pensions and GPF, and to provide accurate
and timely payments to beneficiaries
Challenges
– Available data is insufficient for reliable analysis
– Reporting is inaccurate
– Long‐term projections uncertain due to inaccurate
data
– Planning is based on incomplete and inadequate
information
11
Key Interventions
2. Improve recordkeeping and service delivery
Accuracy, completeness and accessibility of
employee records
– Transfer paper‐based payroll, pension and GPF
histories into new automated environment
(SAP/R3)
– First step, complete conversion of records
– Subsequent step, ensure accessibility and improve
the accuracy of the data
– Procedures and business process need to be
changed in line with automated environment
12
Key Interventions
2. Improve recordkeeping and service delivery
Service delivery – towards hassle‐free pension
payments within easy reach of their place of
residence
Initiatives:
– Establishment of one‐window Pension Facilitation
Cells
– Scanning of claim documents
– Automation of pension payments
Key Interventions
3. Improve pension and GPF policy
Challenges
– Growing cost of pensions and GPF, driven by
demographic profile of active employees vs
inactive pensioners
– Federally imposed decisions on scheme design
and indexation disturbs finances of Province
– Better appreciation of impact of changes to design
of pension scheme is required to keep pensions
affordable and sustainable
14
Key Interventions
3. Improve pension and GPF policy
Reporting on accrued pension costs
– Focus is on annual payment of benefits, rather
than on cost accrued from year to year
– Current amount reported as pension expense is
only 1/5th of accrued amount
– Introduction of accounting standard: International
Public Sector Accounting Standard 25 (IPSAS 25)
– Allows decision makers direct control over
pension promise and pension cost, and to
improve their planning accordingly
Key Interventions
3. Improve pension and GPF policy
Policy debate ongoing for last 10 years, so far
without dedicated task force
Reform options:
• Parametric changes, introducing changes within the
existing scheme, for instance, adjusting accrual rate
in pension formula, retirement age, commutation %
• Systemic change: shift considered from Defined
Benefit towards Defined Contribution System
16
Way forward – Pensions and GPF
• Financing is under authority of Government of
Sindh, progress in gradual, sequenced manner
• Administration is under federal authority of
Accountant General, progress guided by joint
Employee Benefit Administration Taskforce
• Policy reform is under authority of federal
government, inputs through dialogue in
various forums, for instance Pay and Pension
Commission
Way forward – Key interventions
• Financing
– Establishment of professionally managed SFMH with
transparent, accountable structure by 2011
• Administration
– Further improvement of accuracy and completeness of
data, and service delivery
• Policy
– Review own employee benefit scheme, improved
accounting and increased sensitization of other
stakeholders on federal and provincial level
Salamat po!