Last week, Prime Minister Imran Khan expressed his resolve to address the pension issue. It is the first time the issue of pension has found a space on the national policy radar and caught the sitting PM’s attention.

To address the pension problem, the PM must sort out its economics, politics and process. I have written extensively on the economics and process, but not as much on politics. Nonetheless, politics remains the thorniest part. Considering that any reform could potentially change the pension benefits for or impose contribution requirements on government employees, these could be controversial.

The only way to sail through these issues is through winning allies — including the politicians, public sector employees and even the military — by effectively communicating to them that it’s a win-win proposition.

Why is it a win for the politicians? Federal pension payments have been growing at 18% a year, while provincial pension liabilities have been growing even faster. Such abnormal growth is taking a toll on the development budget — the voters’ share. All other budget heads, whether salaries, defence, debt or markup payments, are quite inflexible. It’s the development budget that is likely to get squashed as pension payments balloon further.

The annual pension payments by federal and provincial governments and state-owned enterprises are now touching a trillion rupees a year. If somehow, all these pensions could be transitioned to a contributory scheme, it could very well save the government at least Rs500 billion a year, assuming 50% contribution by employees.

This money can then be made available for development that can get politicians some votes. Why is it a win for government employees, especially if they are slapped with a mandatory contribution? The real purpose of pension is to provide a safe and certain post-retirement income stream.

And what could be safer than a well-structured transparently managed pension fund? On the contrary, if the government continues with its existing unfunded pension model, it is soon expected to hit a wall. Many public sector employees today will be pensioners of tomorrow, when the government will be forced to make unilateral cuts. Those cuts are going to be much more bitter than the modest contributions that have to be made today. And to sweeten the deal, the government could introduce a one-time increment to make the contributions more palatable.

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