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Proposal for Restoration of Viability of EOB Pension Scheme Incorporated in
EOB Act 1976  

No. EOBI/CS/001/2002

Kindly refer to the subject noted above.  The 5^th Actuarial Valuation Report of EOBI prepared by M/s. Akhtar & Hassan (Pvt.) Limited has reiterated that the EOB Scheme in its present form is not viable.  They have supported the views of experts of World Bank and stressed that the Government/Institution should take immediate steps for introduction of appropriate Progressive Definite Scheme to restore viability of the Pension Scheme.  

2.        The salient features of the report are summarized as under:- 

• That the income would exceed the outgo up to the year 2023.  From 2024, Fund’s outgo would be more than its income.  The position would aggravate swiftly in subsequent years. 

• That the Scheme in its present form is not financially viable.  The main cause for this was the withdrawal of Government’s matching grant to the Fund w.e.f. July 1995. 

• That the benefit payments and administrative expenses would exceed contribution income plus investment income resulting in depletion of the Fund from 2024. 

• The Fund shall be completely exhausted in succeeding eleven years i.e 2035. 

• The Actuary has estimated that the EOB Fund should earn at least 7% above the inflation to maintain its financial health. 

• The Actuary has examined the financial impact of the proposed reforms namely enhancement of minimum pension from Rs.700/- to Rs.1000/-, rationalization of age for entry into the Scheme, lowering qualifying age for seasonal workers, grant of formula pension to survivors, effective recovery measures and concluded that in case, proposed reforms are implemented without any increase in contribution, the fund will start depleting from 2021 and exhaust fully in 2032. 

Progressive Definite Scheme: 

3.   The Actuary has examined following three alternatives for Progressive Definite Scheme to keep the EOB Scheme in long-term actuarial balance.  These options are based on theme of fixed contribution and fixed benefit with revision of both after three years on the basis of latest actuarial valuation 

Alternative 1:

(a)        Required Contribution:

Employer Contribution:                                                     Rs.225 per month

Contribution from Insured Person                                    Rs.  50 per month

(b)        Benefits:

Base pension benefit for first 15 years of service:                 Rs.725 per month

Addl. Pension for each year in excess of 15 years:               Rs.   25 per month

Following table summarizes the pension benefits at different service periods:

Alternative 2:

(c)         Required Contribution:

Employer Contribution:                                                     Rs.300per month

Contribution from Insured Person                                    Rs.  50 per month

(d)         Benefits:

 Base pension benefit for first 15 years of service:                 Rs.1000 per month

Addl. Pension for each year in excess of 15 years:               Rs.   25 per month

Following table summarizes the pension benefits at different service periods: 

Alternative 3:

Under this alternative pension and contribution shall be increased step by step after every second year.  The schedule of contribution and benefits for the first 9 years is as follows:

 Conclusion:

 4.                  It is evident from the report that immediate corrective steps have to be taken to arrest the depletion of Funds.  The Institution has already taken a number of administrative steps which can be summarized as under to improve viability of the Scheme:-

I.          Coverage of all employers in the Scheme through Map Survey and construction of employers data base.

II.          Transformation of an arbitrary system of collection into a fair & just system of collection of contribution on the basis of concrete evidence and inspection to ensure collection of contribution in respect of each Insured Person.

III.         Introduction of Self Assessment Scheme on the basis of flat rate contribution of Rs.150/- from employers and Rs.20/- from employees per worker per month.

III.           Better avenues for investment like stock exchange, TFCs have been explored.

 5.                  Administrative improvements and enhancement of return on investment is a continuous process and present management of EOBI is committed to discharge its responsibilities in this regard.  However, the administrative improvements can not cure the structural actuarial imbalance which requires increase in contribution or Matching Grant by the Federal Government.

6.         Keeping in view above facts, it has been decided to solicit your esteemed opinion on the adoption of one of the above alternatives or any other alternative or proposal to restore viability of EOB Pension Scheme.  The comments or proposal(s) may kindly be furnished upto 25^th June 2003 positively.

        Best regards.

                                                                                                            Yours sincerely,     

                                                                                                                   (Muhammed Shafi Malik)

                                                                                                                                 Chairman

Distribution:

• All Federation/Associations/Chambers of Employers

• All Federations/Associations/Trade Unions of Employees

• WEBCOP/PILER, APFOL

• Mr. Muhammad Anwar Chaudhry, Head Actuary, Ministry of Finance, Government of Pakistan with the request to kindly evaluate the proposals and give his esteemed opinion

• Mr. Shujat Siddiqui, M/s. Akhtar & Hassan (Pvt) Ltd. for information and necessary action.The response of stakeholders shall be consolidated and intimated as soon as it is received from them

• DG(Ops), EOBI for follow up action and consolidation of view/comments and preparation of Working Paper for next BOT Meeting after due consultation with the Actuary

• All Zonal Head of EOBI for submission of their opinion to the DG(Ops)

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