Reform of Retirement Benefits in 

Sindh, Pakistan
By Fazal Karim Khatri
and 
Michiel Van der Auwera

Disclaimer: The views expressed in this paper/presentation are the views of the author and do not necessarily reflect the
views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent.
ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any
consequence of their use. Terminology used may not necessarily be consistent with ADB official terms.

1
Overview:

• Background
• Key Interventions
• Way Forward

2
 Background
• Government of Sindh employs 480,000 
employees and counts 110,000 pensioners
• Two‐layered retirement system
– Pension: defined benefit scheme, providing 
monthly pension equal to 2.33% of basic salary for 
each year of service, paid from budget
– General provident fund: defined contribution 
scheme, providing lump sum payment, requiring 
contribution of 3‐8% of salary of civil servants

3
 Background
Annual Pension Costs (in 2008‐09 Real Terms)
20.0
18.0
16.0
Lump sum
14.0 Pensions
Rs. Billion

12.0
10.0
8.0
6.0
4.0
2.0
-
09

11

13

15

17

19

21

23

25

27
20

20

20

20

20

20

20

20

20

20
Projected year

4
 Background
•Sindh Pension Fund (SPF) created with seed 
money of Rs 1.2 billion in 2002 and with 
annual allocation of Rs 3 billion 
•Current value: Rs 20.6 billion
•Sindh General Provident Investment Fund 
(SGPIF) created with seed money of Rs 2 
billion in 2007 and annual transfers of Rs 2 
billion
•Current value: Rs 4.4 billion

5
 Key Interventions
1. Financing Pensions and GPF
Challenges
•Weak governance structure of SPF and SGPIF 
• Board of Directors decides on investment
• Investment unit’s only responsible for 
operational and settlement activities
• No investment policy and investment 
restrictions
•No financing strategy 

6
 Key Interventions
1. Financing Pensions and GPF
Sindh Fund Management House (SFMH), a 
single entity managing government funds, to 
improve governance structure of various 
investment funds, including
• SPF (value: Rs 20.6 billion)
• SGPIF (value: Rs 4.4 billion)
• Sindh Social Relief Fund (Rs 11.3 billion)
• Sindh Viability Gap Fund (Rs 3 billion)

7
 Key Interventions
1. Financing Pensions and GPF
Proper governance structure is essential to 
support long‐term investment performance
– SFMH Act is under preparation separating responsibility of 
Board of Directors, Investment Unit and oversight
– Board of Directors: goal setting, ultimately responsible –
small board comprising ex‐officio and investment 
specialists from private sector
– Investment Unit: daily management – chief investment 
specialist, investment research analyst and accountant are 
being hired from the private sector
– Oversight: same regulatory framework as private pension 
sector plans

8
 Key Interventions
1. Financing Pensions and GPF
Financing strategy required to specify when to 
use accumulations to meet benefit payments

9
 Key Interventions
1. Financing Pensions and GPF
Government’s current GPF financing policy
750

600
Gross GPF liability
SGPIF value
450 Net GPF liability
Rs Billion

300

150

0
09

11

13

15

17

19

21

23

25

27

29

31

33

35

37
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
Projection Year
 Key Interventions
2. Improve recordkeeping and service delivery
Reliable recordkeeping is required to manage 
pensions and GPF, and to provide accurate 
and timely payments to beneficiaries
Challenges
– Available data is insufficient for reliable analysis
– Reporting is inaccurate
– Long‐term projections uncertain due to inaccurate 
data
– Planning is based on incomplete and inadequate 
information

11
 Key Interventions
2. Improve recordkeeping and service delivery
Accuracy, completeness and accessibility of 
employee records
– Transfer paper‐based payroll, pension and GPF 
histories into new automated environment 
(SAP/R3)
– First step, complete conversion of records
– Subsequent step, ensure accessibility and improve 
the accuracy of the data
– Procedures and business process need to be 
changed in line with automated environment

12
 Key Interventions
2. Improve recordkeeping and service delivery
Service delivery – towards hassle‐free pension 
payments within easy reach of their place of 
residence
Initiatives:
– Establishment of one‐window Pension Facilitation 
Cells
– Scanning of claim documents
– Automation of pension payments
 Key Interventions
3. Improve pension and GPF policy
Challenges
– Growing cost of pensions and GPF, driven by 
demographic profile of active employees vs
inactive pensioners
– Federally imposed decisions on scheme design 
and indexation disturbs finances of Province
– Better appreciation of impact of changes to design 
of pension scheme is required to  keep  pensions 
affordable and sustainable

14
 Key Interventions
3. Improve pension and GPF policy
Reporting on accrued pension costs
– Focus is on annual payment of benefits, rather 
than on cost accrued from year to year
– Current amount reported as pension expense is 
only 1/5th of accrued amount
– Introduction of accounting standard: International 
Public Sector Accounting Standard 25 (IPSAS 25)
– Allows decision makers direct control over 
pension promise and pension cost, and to 
improve their planning accordingly
 Key Interventions
3. Improve pension and GPF policy
Policy debate ongoing for last 10 years, so far 
without dedicated task force
Reform options:
• Parametric changes, introducing changes within the 
existing scheme, for instance, adjusting accrual rate 
in pension formula, retirement age, commutation %
• Systemic change: shift considered from Defined 
Benefit towards Defined Contribution System

16
 Way forward – Pensions and GPF
• Financing is under authority of Government of 
Sindh, progress in gradual, sequenced manner
• Administration is under federal authority of 
Accountant General, progress guided by joint 
Employee Benefit Administration Taskforce
• Policy reform is under authority of federal 
government, inputs through dialogue in 
various forums, for instance Pay and Pension 
Commission
 Way forward – Key interventions
• Financing
– Establishment of professionally managed SFMH with 
transparent, accountable structure by 2011
• Administration
– Further improvement of accuracy and completeness of 
data, and service delivery
• Policy
– Review own employee benefit scheme, improved 
accounting and increased sensitization of other 
stakeholders on federal and provincial level
Salamat po!