The pension system in Pakistan has been a topic of debate for over a decade, with questions being asked on policy decisions regarding funding and structural inadequacies in pension management.
The decision in 2009 to include future retirees in pension increments has had a compounding impact on the financial burden faced by the government, meaning that each new pension increment has been applied to an expanding pool of beneficiaries.
While the magnitude of the problem is evident, the politicisation of pensions, both civil and military, poses significant hurdles to any debate on the issue and/or implementing necessary changes.
At present, the pension bill has risen to unsustainable levels, taking up a considerable portion of the government’s revenue and tax income. Over the last five years, the federal pension bill has witnessed a fourfold increase, reaching a staggering Rs1.01 trillion in the fiscal year 2025, indicating a 26% increase from the previous year; at this rate, it would result in an expected annual growth rate of 22-25 per cent over the next 35 years.
The pension system in its current form promises predetermined benefits upon retirement, without requiring contributions from employees during their service years which puts the entire burden of the pension system on the government.
Given the average life expectancy of 67 years and retirement age of 60 years, an assured benefit of 30 years with transfer of benefits to family members post the pensioner’s demise also creates a further burden.
Crucial learnings from international experiences offer efficient solutions that can help build a reliable pension system that is both financially sustainable and socially equitable. For instance, in Sweden, a comprehensive multi-pillar model has been designed to provide financial security in retirement through a blend of public and private contributions.
The first pillar, referred to as income pension, operates on a pay-as-you-go (PAYG) basis, with 18.5% of an individual’s earnings contributed towards their pension.
The federal pension bill has increased fourfold in the last five years, and in the fiscal year 2025, it reached an astounding Rs1.01 trillion, up 26% from the year before. If this trend continues, the bill is expected to grow at an annual rate of 22–25% for the next 35 years.
The existing pension system places all of the financial burden on the government because it only requires contributions from employees during their service years and offers predefined benefits upon retirement.
With a retirement age of 60 years and an average life expectancy of 67 years, an assured benefit of 30 years that transfers benefits to surviving family members after the pensioner’s death also adds to the burden.
