etirement insecurities are the concern of almost every individual. Millions of people worldwide lack adequate incomes to save for retirement. However, pension programmes sustain their spending behaviours in the elderly life. Many countries have state-sponsored pension schemes that only cover people working in the public sector.

Pakistan has a pension programme that serves only employees in the public sector. Workers in the private sector, especially in the informal sector, remain unprotected.

Even though some of the working population in the private sector is getting benefits from the EOBI, those who are engaged in the informal sector will be left behind in their retired life, ultimately being dependent after retirement.

A survey of elderly people conducted in 2019 found that 40 percent of the respondents in their retired life had no source of income; 28 percent received around Rs 10,000 a month. For women, the situation was even more miserable.

The government’s pension bill has been rising not only because of the increasing number of pensioners but also due to increments in the pensions. Currently, the government is the sole contributor to the pension scheme. The lack of contributions from employees is a major threat to Pakistan’s fiscal sustainability.

Projections show that the pensions bill will become unsustainable in the coming years. Since pensions are paid through the budget, the growth in this liability must be financed either through borrowing, or cuts in other expenditures, such as development.

Around 74.2 percent of the population is currently under the age of 34 years. It will fall in the 50-or-above age bracket by 2050. A crisis is thus imminent. Yet, no mechanism has been developed to protect these people in their old age.

Pension payments are already a bigger challenge than the circular debt. This year alone, the allocation for pensions was set at Rs 801 billion (Rs 563 billion rupees for military pensions and Rs 228 billion for civilian pensions), which is 51.5 percent higher than last year’s allocation of Rs 530 billion.

The pensions bill has been growing almost in parallel to the total budget. Pensions from 2018-19 have grown by 2.34 times whereas the budget grew by 2.59 times. Pakistan is already in a debt trap and the economic turmoil is wreaking havoc. The government is bound to return to the IMF for help. The time is not far when the IMF will make pension reforms a condition for release of its funds. The government has no other option but to take aggressive steps in this direction.

Changing applicable pension rules is a tricky and politically unpopular decision. In Pakistan, we need staunch policy reforms and strong political will to transform and review laws that are deepening our economic crisis.

We need not only to reduce this burden on the state but also to include workers from the private and informal sectors. We can learn some lessons from the experience of our neighbours. In 2022, the government of Bangladesh approved a Universal Pension Scheme bill to bring the aging population into the social safety net. This allows residents between the ages of 18 and 50, natives or foreigners, to contribute to the scheme. The contributions can be as low as 500 takka (Rs 1,370) per month. The scheme mainly aims at bringing the growing elderly population of the country under a well-organised social safety net. Four different schemes have been introduced to expand the social safety net. The idea is to include the private sector, informal sector (farmers, rickshaw pullers, labourers, blacksmiths, potters, fishers and weavers) and low-income people (living below the poverty line determined by the Bangladesh Bureau of Statistics). Citizens working and living abroad can also join in.

Meanwhile, Pakistan’s public sector pension system is funded entirely by the taxpayers.

Overburdening the salaried and middle-income class not only makes them compromise on the basic needs but also stop thinking about saving for their future or retired life. Last year, the tax paid by the salaried class was 296 percent higher than exporters and retailers put together.

The world is moving away from an unfunded budgetary pension model to ‘contributory schemes’ and pension funds. It is high time for Pakistan to make strides in this direction to control the ever-growing national liability. There is a need to modify the system.

The privileges associated with the public sector jobs are generous in some respects. Many people in private sector jobs aspire for government jobs. It is important to keep in mind that, unlike many countries, pensions in Pakistan are unfunded.

Most countries have moved from unfunded to funded pensions and introduced defined contribution pension programmes. This can be done by introducing a contributory pension programme like the one that has been rolled out in Khyber Pakhtunkhwa. The government contributes 12 percent and the employees contribute 10 percent. The scheme is available to employees hired in July 2022 and later. The scheme is managed by third-party managers. In the longer term, the government can set up a firm for pension management.

If reforms are not undertaken within a decade, most pensioners might not get a pension. We simply won’t have the money. Else, we might have to choose between pensions and development projects.

Reforming pays and pensions mechanisms can help create a more responsive and delivery-oriented public sector.

Changing applicable pension rules is a tricky and politically unpopular decision. We need staunch policy reforms and strong political will to transform and review laws that are deepening our economic crisis.

The authors are associated with the Sustainable Development Policy Institute. The article doesn’t necessarily represent the views of the organisation