PENSION: A self-financing pension plan for everybody

The Universal Pension Plan will provide a pension to every adult on a self-financing basis. Its objectives will be to
a) provide pension to every public servant at a much higher rate than at present, while absolving the Government of financing it,
b) provide a pension for every private sector employee without any burden on the employers;
c) allow every self-employed person to have a pension for himself.

Who will manage it?
The Government will create an autonomous organization, National Pension Fund, with the following as members of the Board of Directors in view of their relevance to the plan:
a) Federal Finance Secretary (Supervision of deductions from salaries of public servants for the Pension Fund),
b) Auditor General (Audit of the Pension Fund operations),
c) Accountant Generals of all provinces (Audit of deductions from salaries of public servants of their provinces),
d) Governor, State Bank (Purchase of all bonds by Pension Fund),
e) Chairman, Securities and Exchange Commission (Supervision of deductions from public and private limited companies)
f) President of the National Bank of Pakistan (Supervision of payment of pensions through the bank’s network of branches)

How will it start?
National Pension Fund will create a pension account for every adult citizen when NADRA issues his national identity card. NADRA will communicate the information given in the identity card to the Fund for identification and record. For convenience in reference, the Fund will give a pension account the same number as that of the national identity card of the account-holder. NADRA will also communicate subsequent changes in the data of national identity cards.

Who will contribute and how much?
The Federal Governments, the Provincial Governments, the Local Governments, all autonomous bodies and corporations and other units in the public sector will deduct every month 10% or more of the gross salary (basic pay, all allowances, all benefits) of every employee and deposit it in his pension account with the National Pension Fund through the National Bank. Simultaneously, the employer will deposit in an employee’s pension account an amount equivalent to the deduction from his gross salary.
Every public and private limited company and every employer with more than 10 employees will also deduct every month 10% or more of the gross salary (basic pay, all allowances, all benefits) of every employee and deposit it in his pension account with the National Pension Fund. Simultaneously, the employer will deposit in an employee’s pension account an amount equivalent to the deduction from his gross salary.
The monthly deductions will continue to be made in case of all employees as long as they are in service, whether permanent, temporary or on contract. If an employee leaves for any reason and starts working with another employer, he will give his National Pension Fund account number to the new employer and the monthly deductions will start again.
At his discretion, an employee may also make additional contributions to his pension account from his savings to enhance the amount of pension that he will get on retirement. The employers may also deposit bonuses in the pension accounts of the employees instead of paying them in cash.
The Government will abolish Employees Old Age Benefit scheme and Social Security as the Universal Pension Plan will provide better benefits.
Common Fund. When a pensioner dies and there are no more any dependents, the balance in his pension account will go to a Common Fund of the National Pension Fund. The return on this amount will increase revenue and allow higher pension rates for all. The higher rates will be in inverse proportion, with lower pensions getting higher increases.

Where will the National Pension Fund invest the contributions?
A law will be passed to require every public and private limited company to issue bonds equal to 10% or more of its paid up capital to the National Pension Fund. (The companies will issue the bonds as and when the Pension Fund places a demand.) The interest on the bonds will 10% or more.
The bonds will have no maturity dates and the issuers will continue to pay interest on them. If a company winds up its business for any reason or goes bankrupt, the Fund will have the first lien on its assets and recover the full value of the bonds and the due interest.
Every employer with 10 or more employees will also have to issue bonds to the National Pension Fund equal to the 10% or more of the value of its total assets, at a rate of 10% or more.
The issue of bonds by a company or firm will not be a burden. It will pay interest out of its profits before declaring a dividend. The company will save a huge amount by not paying pensions to its employees. It will also not have to pay anything for Social Security and Employees Old Age Benefit scheme because both will be abolished as being redundant. On the other hand, the company will be using the money from bonds for its business. If it makes a profit of over 10% on the bond amount, it will have a net gain.

Investment only in bonds. As the Pension Fund collects deductions, it will invest the amount in the bonds of companies and other employers. It will also reinvest immediately the amount of interest that it will be getting.
If the National Pension Fund ever reaches the maximum limit for bonds that it can buy from all public and private limited companies and employers with 10 or more employees, it will use the surplus funds to buy bonds from the federal and provincial governments at 10%, with interest paid every quarter. There will be no maturity date for the government bonds, nor any limit on their issue.
The National Pension Fund will not make any investment except in bonds. Under no circumstances will it enter the stock market because that involves risk and speculation. We have seen how the slumps in the stock markets destroyed the pension funds even in countries like the U.S. Therefore, the National Pension Fund will not take any risk of any type, however tempting the offers may be. We cannot afford to betray the trust of the entire adult population of the country under any circumstances.

What will be the rate of pension?
The actual pension rate will depend on the balance of a pension account-holder on the day the pension is to start. With a guaranteed return of 10% per annum on bonds and the reinvestment of all interest payments, the National Pension Fund will get a total return at a compound interest rate of 10%. That may get a monthly pension of about Rs 2500 on a deduction of Rs 100 per month (matched equally by the employer) for 40 years, or 25 times. The amount will rise to Rs 25,000 on deduction of Rs 1000 per month. That will be quite substantial in any case.
A pensioner may further increase his pension if he increases his monthly deduction to more than 10% of gross salary. He may also deposit his savings in his pension account, as he will get a higher return (10% compound interest) than even on national savings schemes.

What will be the types of pensions and other payments?
A pension will start normally at retirement age. The Government and other employers may increase the present retirement age to 65 years to utilize for five more years the knowledge and experience of their employees because it will not mean any financial burden with regard to pension. An employee may also prefer to continue if he likes his job and is physically fit. On taking retirement at 65, the rate of pension will also go up substantially.
Self-employed. A self-employed person may retire at the official retirement age or any later or earlier date. If he decides to retire earlier, he will start getting a pension based on his account balance at the time.
Unemployment allowance. If a person loses his job for any reason, he may get unemployment allowance at 10% of the balance of his pension account. This payment may stop when he gets another job and his new employer resumes deductions from his gross salary. This unemployment allowance will provide a safety net without being a burden on the Government or the private sector employers.
Loan. An employee may borrow money from his pension account to meet serious emergencies but not more than 10% of the balance at a time. He will have to pay 10% interest on his borrowing. If he does not repay within 60 months, the due amount (including interest) will be debited from his account. It will reduce his balance and ultimately affect his pension.
Successors. On the death of a pensioner, his spouse will get the same amount of pension for life. After the death of the spouse, the pension will be equally divided among the dependant sons and daughters of the pensioner that are under 21 years. After that, the entire balance of the pensioner’s account will go to the Common Fund of the National Pension Fund for the ultimate benefit of all pensioners.
Group life insurance. The National Pension Fund will itself provide group life insurance to all of its account-holders. In case of death or permanent disability before reaching retirement age, the group life insurance will allow payment of full pension with immediate effect. The rate of pension will be the same as it would have been on due retirement age if the deductions of the employee and his employer had continued at the present rate.
If the National Pension Fund charges just one rupee per month per person for group insurance, it will collect tens of millions of rupees every month from its account-holders. The insurance will also be far more convenient to manage and cheaper than by involving an insurance company.
No health insurance. However, the Fund will not provide health insurance as it will lead to colossal frauds. Instead, the Government should build hospitals at all Tehsil headquarters for free treatment of pensioners.

How the Fund will pay pensions?
When the pension is due to start, the Fund will ask the account-holder to open an account with any convenient branch of the National Bank. Then it will transfer the money to his account directly every month. If a pensioner does not draw any amount for three months, his account will be suspended until he meets the branch manager to prove that he is alive.
National Bank, being the only government-owned commercial bank, will be the only collecting and disbursing bank for the Pension Fund. All deductions from gross salaries of employees will be deposited in designated bank branches (one in every district). The bank already disburses pensions to retired government servants and also serves as the government treasury.

How Government may adjust present employees and pensioners?
While all new employees will come under the Universal Pension Plan, the present pensioners and employees in service may be adjusted as follows:
a) The Government may transfer the responsibility for all present pensioners to the National Pension Fund and lend to it free of interest an amount ten times its annual total pension liability. The Fund will invest the money in bonds that will give it 10% return. It will then continue to pay to all present pensioners. As present pensioners pass away, the Pension Fund may go on refunding the loan.
b) The Government may bring under Universal Pension Plan all present employees, who deposit an amount equal to their due deductions since joining service. As its contribution, the Government will deposit an equal amount into their pension accounts.
c) The Government may make it compulsory for all employees with less than 10 years of service to deposit back deductions and come under the plan. That will reduce the total period for the Universal Pension Plan to cover all employees.
The employers in the private sector may also take these steps.