The Establishment Division (ED), the custodian of the employees’ career path, has rejected some of the proposed pension reforms by the Ministry of Finance (MoF) as unfair and demoralising to government employees.
The MoF had suggested in a summary to the cabinet that the pension benefits should be calculated based on 36-month average salaries instead of only last drawn salary, and that early retirement should be discouraged by imposing a 3 to 10% penalty on the retiring employee.
The ED argued that these changes would adversely affect the employees who are promoted in the last year of their service, as they would receive lower pension benefits than their peers due to the lower average value. It also said that the penalty on early retirement was too excessive and needed to be revisited, as there could be genuine reasons for opting for early retirement.
The ED proposed to increase the retirement age by two years to 62 as an alternative option to contain pension liabilities, and warned that the MoF should consider this option to avoid negative impact of the proposed reforms on the morale of government employees.
A ministry official, however, termed the ED’s suggestion regarding the increase in superannuation age as illogical, saying that it would shift the burden from the head of pension to the head of salaries and related perks of the in-service employees, especially those in the higher cadres.
The MoF had also proposed to lower the retirement benefits by changing the ratio of commutation/pension from 35:65pc to 30:70pc and then to 25:75pc, and by discontinuing the restoration of full pension after completion of a number of years purchased. Moreover, the annual increase in pension would be given on gross or net at the time of retirement and indexed to the Consumer Price Index (80% of CPI of last three years) with a maximum increase of 10% per year.
The MoF had also proposed to replace the defined benefit model of pension with the establishment of a pension fund, for which an initial seed amount of Rs 5 billion was allocated in the FY24 budget.
The proposed pension reforms are aimed at containing the annual growth rate in pension liabilities, which have been increasing at an alarming rate due to the rising number of retirees and the generous pension benefits.
