SBP Recommends Increase in Retirement Age

The State Bank of Pakistan (SBP) has proposed an increase in the retirement age in a bid to reduce the average coverage period of retirement benefits and ease the pension burden on the country’s budget.

According to the Q1 FY21 report by the SBP, public sector pension spending has grown significantly in the previous decade, rendering the current structure of pension payment unsustainable.

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The report notes that the overall pension spending as a share of tax revenue reached 18.7% during FY20, almost twice the level from a decade ago.

Moreover, the overall pension expenditure during FY20 went beyond health and education budgets on both federal and provincial levels and was half of the total public sector development budget.

During the last five years, civil pensions, including federal and provincial, accounted for 63.2% while military pension constituted 36.8% of the total pension expenditure.

SBP has attributed the rising pension burden to two factors i.e. an increase in life expectancy and lower-than-expected investment returns.

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The report concludes that “increasing the retirement age will support in increasing the contribution period once the government opts for a funded system in the subsequent round of reforms.”

Both the World Bank and International Monetary Fund (IMF) have also raised concerns over Pakistan’s rising pension expenditure.

The international financial institutions predict the civil service pension expenditure to exceed the civil service salary spending by 2023 in Punjab and 2028 in Sindh.