or young people in Pakistan, particularly those working in the private or informal sector, the question of financial security in old age is a significant concern. The thought of where money will come from during retirement is daunting. Reflecting on this issue can quickly lead to feelings of fear and uncertainty.

A substantial portion of Pakistan’s population is young; 64 per cent are under the age of 30 and 29 per cent between 15 and 29 years old. Currently, many are preoccupied with job security and income stability, struggling to make ends meet in an economically challenging environment. The additional burden of thinking about old age and retirement only exacerbates their frustration and anxiety.

In the recently announced budget, the government has announced a 15 per cent raise in pensions for retired government employees. However, this benefit will reach only a small portion of the elderly population, as most retirees come from the private sector, the informal sector or were self-employed.

There are around 18 million elderly people in Pakistan today. Out of them, 15 million receive no pension. This stark reality is perhaps more frightening than any other aspect of financial insecurity.

Exploring three crucial aspects – coverage, adequacy and sustainability – can help one understand the pensions issue. Each aspect highlights different challenges and opportunities within the pension system, reflecting its current state and prospects.

When it comes to coverage, only a small fraction of the elderly population in Pakistan receives pensions. It is estimated that pensions reach around 15 per cent of the older population. This means that around 15 million old people in Pakistan live without a pension.

Pakistan has only two pension schemes. The first is a tax-funded scheme for government employees, covering only seven to ten per cent of old people. The second is the contributory Employee Old Age Benefit Institute scheme for private-sector employees.

According to the EOBI website, the number of pensioners is 711,190. This represents about 3.7 per cent of the country’s 18 million elderly people. Although all businesses with more than five employees are meant to register for the EOBI, the reality is that only 92,626 employers are registered with EOBI, covering less than 10 million people out of a labour force of 80 million. This low level of engagement is a major concern.

It is important to note that Pakistan is the fifth most populous country in the world. It has a population estimated at 240 million. By 2050, the number of old people in the country is expected to rise to 45 million.

When discussing adequacy, it’s important to note that an employee must contribute to the EOBI scheme for at least 15 years to become eligible for a pension upon retirement – at age 60 for men and 55 for women. If the employees make the minimum contribution, they will receive Rs 10,000 a month upon retirement.

With the budget setting the minimum wage at Rs 37,000, it’s worth asking whether home-based workers, security guards and young people employed in shopping malls are even receiving the previous minimum wage of Rs 32,000.

Comparing the monthly EOBI pension to the minimum wage reveals that it only represents 27 per cent of the minimum wage. There are unconfirmed reports that the EOBI monthly pension will be raised increased from Rs 10,000 to Rs 15,000. It will still be only 40 per cent of the new minimum wage.

Considering the rising prices of essential items, it is challenging for an elderly person to survive on a pension of Rs 10,000 or Rs 15,000. With recent increases in fuel and electricity prices, it is unlikely that a pensioner can even cover their basic utility bills with this amount.

Elderly people often require regular medication and health check-ups, further straining their limited financial resources. The current pension amount is simply insufficient for them to manage their daily needs and maintain a decent standard of living.

The cost of pensions for its employees is a growing concern for the government. Public sector pensions are funded exclusively funded the national budget and represent the government’s largest social protection expenditure. In the 2024-25 budget, the amount allocated for pensions is Rs 1.014 trillion.

This expenditure has been increasing by the year: it was Rs 821 billion in 2023-24, Rs 609 billion in 2022-23, Rs 525 billion in 2021-22, Rs 480 billion in 2020-21 and Rs 421 billion in 2019-20. Based on current population trends, it is likely to be around 11-12 per cent of the GDP by 2050.

Of even greater concern is the fact that, despite the high cost of pension payments, the actual reach is limited. The government pensions cover no more than 15 per cent of the elderly population in the country.

It is crucial for the government to undertake pension reforms that not only expand coverage and increase adequacy but also ensure sustainability. The foremost reform should be transforming the government’s pension scheme into a contributory one.

By doing so, the government would receive contributions from over 2 million government employees, thereby reducing the fiscal burden and freeing up resources that can be allocated to other social protection programmes.

In his budget speech, the finance minister announced that the government would adopt a strategy to reform pensions. He stated that a contributory pension scheme would be introduced for new government employees.

The second step should be to expand pension coverage in the private sector by ensuring that all businesses register for the EOBI. Pakistan’s private sector has a large labour force of approximately 80 million people, many of whom are willing to contribute to their pensions for financial security in later life. However, most employers are not registered with the EOBI. The government should explore ways to enable small and medium-sized businesses to enroll their employees in the scheme while strengthening monitoring and enforcement systems to compel employers to register.

Lastly, the government needs to introduce a simplified contributory scheme for informal workers. A majority of Pakistan’s labour force, including those in agriculture and self-employment, operates within the informal sector. Reform should also help create a gender-responsive pension system, ensuring that both men and women have access to financial security in their later years.

The writer is a communications specialist. Based in Rawalpindi, he may be reached at qureshiwaqas@gmail.com. He tweets @qureshiwaqasA.