Funding Strategy 2010-39

The main objective of the funding strategy is to ensure that the explicit Pension and GP Fund liabilities are paid without seriously compromising other expenditures in the future. In this respect, priority would be given to harder liability of the GP Fund which can easily be funded fully in a number of years and taken of the budget. The funding will happen on a regular, annual basis to instill discipline in addressing the growing costs and accrued liabilities.

            The 2010-39 funding strategy aims to:

  1. build up reasonable pension assets during the next 5-10 years so it can smoothen pension benefit payments from the budget by paying any expected and unexpected spikes in pension expenditures through the earnings of the Punjab Pension Fund, and/or creating fiscal space to meet partial pension outgo, if needed. The funding would be available from provincially generated resources.
     
  2. The government would transfer equivalent amount from the Provincial Consolidated Fund to the annual employees' GP Fund contributions every year and in addition would amortize past arrears of GP Fund annually from the Provincial Consolidated Fund for the next 30 years.

During the initial 5 years, contributions will be relatively limited, in anticipation that it will take a few years before the economy will fully recover, and the government is expected to have greater resources to spare for the funding of the Pension and GP Fund liabilities.  The table below illustrates the funding strategy for the next five years: 

                               Funding Strategy 2010-15                                                                                                     (Rs. in Billion)

Financial Year

Annual Regular Contribution deducted from Saliries

Past GP Fund Libality Amortization Installment

Total Amount of Pension fund Contribution

Total Contribution

2010 - 11

5.0

2.0

2.0

9.0

2011 - 12

5.0

2.0

2.0

9.0

2012 - 13

6.8

3.0

3.0

12.8

2013 - 14

7.5

3.0

3.0

13.5

2014 - 15

8.3

4.0

4.0

16.3

After 2015-16, in case of pensions, the funded amount will be a percentage of the estimated basic pay, which is the basis of determining pension payments. Each year from 2015-16 onwards, 5% of the basic pay budgeted for the provincial employees will be contributed to the Punjab Pension Fund.

 Funding Strategy 2016-2039

  • Annual GP Fund contributions, deducted from employees' salaries
  • Past GP Fund liability amortized over 30 years (from 2010-2039)
  • Pensions: 5% of basic pay budgeted of provincial employees in a financial year

  Impact of funding strategy

Over the next 30 years, the GP Investment Fund would have generated enough resources to set off the GP Fund liability of the government completely from the budget. The government would continue transferring equivalent amount to the annual GP Fund contributions to the GP Investment Fund, from which the GP Fund benefits will be paid back through government accounts directly to the beneficiary. This payment process would be strengthened by improvements in the GP Fund record keeping and administration.

Following graph reflects the reduction in GP Fund liability as percentage of Punjab Government Revenue over 30 year period.

   In case of pensions, fiscal space of Rs12.2 billion will be generated by 2014-15, which equals 32% of the total pension expense of the same year. The fiscal space generated from 2015-16 and onwards covers 7% to 12% of the expense each year during the next 25 years. The result is illustrated in the following graph.                     

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