The Pension Bomb and Possible Solutions

Mahmood Khalid, Naseem Faraz, Muhammad Ashraf Brig. (Retd.)


Public sector employment remains an attraction for two
important reasons: job security and a guaranteed pension (Dixit, 2002).
Unlike other countries, Pakistan has not reformed its public sector
pension system and has maintained a pay-as-u–go defined benefits type
pension system which has resulted in build up of unfunded liability for
the government. Pakistan practices a legacy pension system where
pensioners are paid directly from the revenues as part of the current
expenditures. This practice is inherently unsustainable as pension
expenditure growing at around 25 percent, cannot be provided from an
economy growing at a significantly lower rate. The pension burden is
therefore bound to grow, doubling every four-years. In the fiscal year
2018-19, federal superannuation and pension expenditures were almost 78
percent of the value for PSDP expenditures and it increased in FY
2019-20 to 87 percent (463,419 million Rupees and 533,220 million Rupees
respectively). The share of pensions as a percentage of current
expenditures is also increasing overtime (for FY 2019-20 it stood around
7.6 percent). 1

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