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August 31, 2019

The retirement red herring


August 31, 2019

The committee constituted by the prime minister to deliberate on increasing the retirement age of civil servants has two tasks before it: The panel will examine whether the proposal is feasible economically and administratively. If the answer is in the affirmative, it will consider whether the retirement age should be enhanced across-the-board or selectively.

Set up on August 21 under the stewardship of the advisor on institutional reforms, who himself is a former civil servant, the committee is supposed to finalize its recommendations in three weeks.

The proposal is primarily undergirded by the government’s desire to widen the narrow fiscal space available to it by delaying the disbursement of the monetary package – pension and gratuity – given to the retiring employees. In FY 2018-19, which closed with a record fiscal deficit of Rs3.44 trillion (8.5 percent of the GDP), Rs342 billion were spent on pensions and superannuation allowances, while Rs421 billion have been allocated on the same head for the current year. The proposal may also have the blessings of the multilateral donors, which have the knack of coming up with short-term solutions to complex problems.

The idea to enhance the retirement age is not new. The PPP government (2008-13) had also, for financial reasons, made up its mind to extend the service tenure by three-to-four years. But then it thought better of it. Under immense pressure to scale down a massive fiscal deficit, the present government took up the proposal but subsequently decided to make it part of comprehensive civil service reforms, which are being drawn up by the task force on institutional reforms. However, it took a U-turn and made the proposal an independent exercise for an early decision.

Although the terms of reference have left it to the committee to recommend the period of extension in the superannuation age, it is widely believed that it may suggest a three-year increase. In Khyber Pakhtunkhwa (KP), which is also governed by the PTI, the retirement age of the provincial government employees has already been increased to 63.

Section 13 of the Civil Servants Act, 1973 stipulates that a civil servant shall retire “on the completion of the sixtieth year of his [her] age.” Being a statutory provision, the retirement age can’t be revised without the approval of both houses of parliament. Since the PTI doesn’t command a majority in the Senate, it will have to seek the support of the two major parties, the PPP and the PML-N, on the proposal to make it into a law. It’s not clear whether the opposition will go along with the ruling party. The alternative for the government will be to make the increase in retirement age part of the Finance Bill, 2020, which will require approval of the National Assembly only. Therefore, even if the committee comes out with the suggestion to extend the retirement age and the cabinet approves it, the proposal would take some time to cross the legal hurdle.

The economic and administrative implications of the proposal in question merit our attention. Extension in the superannuation age, say by three years, will help the government save cumulatively between Rs1.4 trillion and Rs1.5 trillion during this period, as neither will new pensioners be added to an already long list nor will retirement allowances be paid. The average pension period will also be cut by three years, as the employees will be hanging up their boots at 63 instead of 60.

The ensuing ease on the public exchequer will be only for three or such number of years for which the retirement age is extended. After the period has expired, the disbursements will have to be made – unless of course the superannuation age is again extended. Thus from an economic standpoint, the proposed increase in the retirement age largely amounts to kicking the can down the road – an example of how governments in Pakistan characteristically shelve a complex problem rather than try and solve it. Not only that, since gratuity is linked to the number of years an employee has put in, the extension in service period will inflate the post-retirement package. As a result, the government may end up spending far more on a permanent basis than it would save in three years. Thus an increase in the retirement age doesn’t make much of an economic sense.

Another argument is that since average life expectancy (ALE) in Pakistan has gone up, the superannuation age must follow suit. Both logically and empirically, the link between the two variables is indeed strong. The case for retirement, inter alia, rests on the fact that as people grow older, they tend to become weaker both physically and mentally. A high standard of living can, however, slow down aging.

Several countries have seen an increase in the retirement age in response to enhanced ALE. Developed countries have relatively high ALE and a correspondingly high retiring age. In the US, where the ALE is 78.8 years, the retirement age is 66. In most EU countries, employees retire at 65, while the ALE is more or less 80 years. The Scandinavian nations have a range for superannuation. In Norway, the ALE is 82.3, while the retiring age is 62-75 years. The ALE in China is 76.7, while the retiring age is 60.

Coming to South Asia, Sri Lanka has the highest ALE of 76.8 years but employees have to call it a day at 60. India has the lower ALE of 69.5 years but the same retirement age as Sri Lanka, and of course Pakistan, where the ALE is 67.1 years. Bangladesh has higher ALE – 72.4 years – than both Pakistan and India but employees have to quit at 55.

Pakistan, the figures show, already has one of the lowest gaps between the ALE and the retiring age, which is 7.1 years. Increasing the retirement age to 63 will further shrink the gap, which means the workforce will be too old relative to the ALE when it retires. This will for sure put the skids under civil servants’ ability to deliver.

An upward revision of the retirement age will benefit most the highest ranked civil servants – federal secretaries and those holding equivalent posts – who will get more years to enjoy their privileged positions. These top bureaucrats, who are primarily responsible for the decadence of the civil service institution, are the least deserving of getting an extension.

In a world which puts a high premium on specialization, the majority of them being generalists have at best a skin-deep understanding of the intricate issues they are supposed to apply their minds on. What’s worse, they have a creed-like faith in the otherwise anachronistic principle of administrative efficiency – which looks upon employees’ reshuffle and penalization as the solution to every problem. The sooner this breed goes home, the better it will be for the country.

That said, in case the government believes that a senior bureaucrat is such a rare gem that without their services the economy or civil administration will fall apart, they can be given an extension as permissible under the Civil Servants Act.

An increase in the retirement age will put the brakes on job creation. The recent contraction in economic growth has hobbled employment generation in the private sector. If for three years, no civil servant retires, job opportunities will arise in the public sector only in the event of the demise of an employee or his/her decision to call it quits. Few things make a government more unpopular than rising employment. Or is the government eyeing opening jobs at one go in the last year of its term?

The soft underbelly of the civil service is its incompetence, not the retirement age. The government’s focus should be on taking up the slack of civil service reforms rather than mulling measures that would leave the institution even slacker.

The writer is an Islamabad-based columnist.

Email: [email protected]

Twitter: @hussainhzaidi