Pension Reform in Pakistan 2023–2024: Towards Economic Sustainability

Uswa Rabbani

Amid a time of growing financial difficulties, there has been a concerning rise in the federal pension budget which has experienced a staggering 500% increase over the last 12 years causing concerns that the cost may someday exceed an astonishing 1 trillion PKR. Taking into account this year’s pension budget, it was Rs 761 billion which is estimated to be whooping 25% more than last year. This has created a financial burden that poses a great threat to the national treasury, as the expense of pensions continues to rise. To guarantee the long-term sustainability of the retirement benefits fund, it was thus necessary to implement creative and structured reforms. Therefore, the Pension Policy Committee (PPC) has taken crucial steps regarding securing the future of its pension system.

The Pension Policy Committee (PPC) 2023/24 has implemented a series of changes to the existing Pension policy for the years 2023-2024 to establish a more sustainable and economically feasible pension framework for the country. The suggested revisions in the current Pakistan Pension Policy, PROPOSED PENSION AMENDMENTS put out by the Pension Policy Committee (PPC) 2023/24, are necessary due to an extended period of unregulated expenditure in the public sector and a growing fiscal imbalance. Within the context of these adjustments, there exist certain clauses that I perceive to be beneficial. One of the amendments implements a reform that encompasses a range of penalties varying between 3% to 10%. The Second Amendment refers to the provision of family pensions. The third amendment grants pensioners the opportunity to use their freedom in selecting between the retention of their pensions or receiving their present job salary for the duration of their employment tenure. Here is the discussion of underlying reasons why few of these reforms have a highly beneficial impact on individuals, their families, and the pension system of the Government of Pakistan.

Promoting early retirement might result in a significant increase in pension costs, making the pension system financially unsustainable in the future. Thus an essential modification in these reforms includes imposition of penalties ranging from 3% to 10% every year of net pension to discourage early retirements. Firstly this practice offers benefits as it precludes employees from opting for early retirement because, in the past, early retirees were granted all benefits, thus in return promoting the continued employment of qualified, skilled, and experienced workers, hence potentially enhancing the delivery of public services and ensuring institutional continuity secondly it also serves as a means for mitigating the financial pressure placed on the government’s pension budget. After all, the reduction of overall pension liabilities occurs as a result of employees choosing early retirement leading to a decrease in pension payouts. This serves to alleviate the financial burden on the government’s budget.

Additionally, this proposed amendment is also perceived as an equitable policy, as it ensures that employees who choose to retire early would get a pension that is commensurate to their shorter tenure of service. The objective of this policy is to uphold fairness and equality within the framework of the pension system by implementing a mechanism that differentiates the benefits received by individuals who retire early from those who continue working until the statutory retirement age. The revisions also tackle the matter of family pensions. The recent amendments have reduced the duration of family pension following the death of the spouse to 10 years. On one hand, this timeframe provides ample opportunity for the capable members of the family to secure a source of income because the awareness of the limited duration of the family pension serves as a motivating factor for guardians to strategize and prepare for the long-term financial stability of the household beyond the specified pension period hence mitigating reliance on the pension fund. On the other hand, in the case of disability or an unmarried daughter who is dependent, the pension will continue for their entire life.

The inclusion of this clause is both thoughtful and practical because individuals with special needs frequently need extended care and support, so making the family pension a valuable resource for addressing their continued financial obligations can ultimately enhance their overall welfare. This measure ensures the preservation of confidence in the institution and enhances the compassion and flexibility of policies. To avoid placing excessive strain on the country’s finances, the new policy provides individuals who are reemployed within the government sector with the choice to either keep their old job’s retirement benefits or get their new work income taken into account when calculating their pension. Such amendments enable individuals to make decisions that are tailored to their specific circumstances and requirements, thus offering pensioners the opportunity to exercise freedom in the management of their financial condition after retirement.

Certain individuals who are retired and receiving pensions may choose to maintain their pension payments, but other individuals may want to pursue re-employment opportunities to augment their financial resources. In simple terms, this amendment upholds the free will of the individual’s decision-making. The recognition of the varying financial demands among retirees is apparent here and the option to decide between maintaining a pension and opting for a salary upon re-employment is a demonstration of respect for their freedom. Ultimately, Pakistan’s Retirement Reform 2023-24 signifies a carefully planned and tactical measure to tackle the growing financial burden on the country’s treasury.

Although these adjustments may present difficulties, they are aimed at guaranteeing long-term financial stability, safeguarding retirees from the detrimental effects of inflation, and creating a work environment that encourages ongoing employment. Additionally, these modifications are designed to retain a humane approach toward family pensions. Thus it will be permissible to say that Pakistan is establishing a solid groundwork for a more prosperous economic future and ensuring the well-being of its retired population through these measures.

The writer is a student of Governance and Public Policy at NUST, Islamabad.