The Pension Bomb And Possible Solutions

PIDE Policy Viewpoint 22:2020
Publication Year : 2020

Public sector employment remains an attraction for two important reasons: job security and a guaranteed pension (Dixit, 2002).1 Unlike other countries Pakistan has not reformed its public sector pension system and maintains 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%, 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% of the value for PSDP expenditures and it increased in FY 2019-20 to 87%(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%).

PIDE Policy Viewpoint 22:2020