Can ailing EOBI come good on raised pensions?

ISLAMABAD: The government’s decision to enhance the minimum pension for Employees Old Age Benefits Institution (EOBI) by Rs1,500 to Rs10,000 per month will not only place the body in a serious financial crisis but may even threaten its existence, due to tug- of-war between the provinces and the centre over its control.

A senior EOBI official told Dawn that after the increase announced in the budget for next fiscal year by the finance minister in his budget speech, the additional disbursement would be Rs571.50 million per month.

The EOBI is currently under the ministry of Overseas Pakistanis and Human Resource Development and the officials fear that the entity could become another “white elephant” that would be seeking funds from the national kitty for its survival.

As of now, EOBI disbursements exceed Rs3.9 billion per month, but the earnings from the assets of EOBI are limited to Rs3.2bn – making a monthly deficit of around Rs400m.

The official added that currently, the institution was facing a deficit of around Rs5bn annually, which would reach around Rs6-6.5bn after the increase announced in the budget.

“Either the government should provide a matching grant to EOBI to meet the deficit amount or implement the minimum wages at the same rate across the country so that the financial inflow improves,” the official said.

“The deficit is being met through the institution’s own assets and it will eventually turn EOBI into a loss-making entity, like other state-owned entities,” the official added.

Established in 1976 as a trust, the purpose of EOBI was to ensure provision of reasonable financial support to the retired employees of private sector institutions where the concept of pensions does not exist.

But now along with the Workers Welfare Fund (WWF), EOBI has been devolved to the provinces in the wake of the 18th Amendment, and the federal government has been reluctant to unbundle the assets of both, and divide it among the provinces.

Currently, there are around 413,183 EOBI beneficiaries in three categories, with the minimum pension amounting to Rs8,500 per month, followed by the second and the third slab at Rs18,000 and Rs21,000 per month, respectively. The pension amount is calculated from a standard formula which includes the basic salary, as well as the length of service of an individual.

The EOBI has been regularly enhancing minimum pensions to its members, as it was Rs2,000 in 2008 and has been gradually raised to Rs8,500. But the returns from private funds the pension funds etc invested in the stock market were much higher.

Sindh government VS employees

The Sindh government has written a strong letter to the Council of Common Interest (CCI) on May 11, 2023 saying the devolution of EOBI and WWF was a constitutional requirement and should be fulfilled.

“We say that it should have been done more than a decade back as the 18th amendment was approved in 2010,” said Saeed Ghani, spokesperson of Sindh Government.

“Sindh province has demanded the CCI that EOBI & WWF should be devolved to those provinces who want to have it devolved and the issue should not be linked with consensus among all four provinces at the same time,” he added.

However, the contention has been challenged in the Supreme Court of Pakistan by the employees of EOBI, who claim that it was not a state-owned entity but the custodian of private money.

“Besides, if EOBI is not maintained at the federal level then who will pay the pensions of private sector employees who have served in different provinces,” asked Raja Iftikhar, president of the Pakistan EOBI Employees Federation.

Whereas to steer the entity out of its negative balance sheet, minister of Overseas Pakistanis and Human Resource Development Sajid Turi recently informed the National Assembly that a consultant has been hired to suggest ways and measures for improving EOBI’s financial status and streamline its accounts.

Another challenge faced by the state owned fund manager was that around 382 cases have been filed against the collection mechanism by several employers, as well as some chambers of commerce and industry across the country.

Labour laws

As per the labour laws in country, eligible commercial and industrial private firms get registered with EOBI and the employer contribute amount equal to 5 per cent of the minimum wages, while the employee contributes equal to 1pc of minimum wage in the EOBI fund. This implies that the total contribution by the worker and the employee was 6pc to the EOBI.

The EOBI contributions were also on the decline as a large number of private firms have started to invest this contribution in modern financial products like mutual funds and other capital market funds.

Published in Dawn, June 11th, 2023