Of the 15 million older people living in Pakistan, only three million of them currently receive a pension. This overall lack of social protection means that many older people lead very precarious lives in Pakistan.
Pakistan urgently needs to adopt policy reforms to create a better social protection system that would ensure every older person can receive a pension and live with dignity as they grow older.
Rising unemployment and inflation are making it increasingly difficult for families to care for older relatives, causing increasing stress and anxiety.
Pakistan has typically relied on its strong family system to care for and provide financial support for people in their older age. Parents dedicate their lives to raising their children and ensuring they get a good education, so they expect their children to support them when they get older.
None of this has been helped by the recent COVID19 pandemic. As Sher Shah, a 73-year-old man from Nowshera explained, “Usually we are dependent for household finances on our children and young people. They work and support us. But they have been unable to continue their work or business due to Corona and the lockdown, and this has resulted in depression, as we are unable to meet our financial needs. We are not getting medicines on time. Money is required for medicines and food, of course.”
Inadequate pension system
Pakistan only has two pension schemes which reach a bare three million of the country’s 15 million older people.
One is a tax-funded scheme for government employees, which reaches only seven to ten per cent of older people. The second is a contributory Employee Old Age Benefit Institute (EOBI) scheme, for employees in the private sector.
All businesses with more than five employees are supposed to register for the EOBI. But the reality is that only 84,000 employers have signed up to the scheme which reaches no more than eight million people – out of a labour force of 75 million. With this low engagement, it is seriously exposed to the risk of failure.
An employee must contribute to this scheme for at least 15 years to become eligible to receive this pension on retirement – at 60 for men, and 55 for women. And if employees only make the minimum contribution, they will receive only PKR 8,500 ($52 USD) a month on retirement, representing less than half the minimum wage.
The cost of the pension for government employees is proving to be a source of concern for the government. Public sector pensions are exclusively funded through the national budget and are by far the government’s largest social protection expenditure. In the 2019-2020 budget, the Federal Government allocated PKR 421 billion (USD2.733 billion) to pensions; this constituted 5.7% of the total current expenditure in the federal budget or about 3.2% of GDP.
Based on current population trends, this is likely to increase to around 11% of GDP by 2050.
Of even greater concern, however, is the fact that even though the cost of pension payments is high, the actual reach is very low, covering not more than 10% of retirees.
Pension Reforms Proposal for Financial Sustainability
As it is currently designed, the country’s pension system is not capable of ensuring even basic income security for all older Pakistanis. Without reforms, the ageing population will face uncertainty and deprivation as they grow older.
Based on the context and performance of the current pension system, HelpAge is advocating for a reform of pension policy in Pakistan, proposing four complementary reforms:
1. Finance the pensions of government employees through their contributions instead of general taxes
This proposal explores turning the government’s non-contributory scheme into a contributory one.
In this scenario, Pakistan’s government would receive contributions from two million government employees. This could reduce the government liability and the contributions could be used to cover the payment of a social pension to informal workers, thereby creating a more sustainable system.
2. Expand the coverage of the contributory pension scheme
To increase pension coverage in the private sector, the government should ensure that all businesses register for the EOBI.
Pakistan has a big private sector, with a labour force of around 75 million people, and people want to contribute to their pension so that they can receive an income in later life. But most employers are not registered for the EOBI.
The government should explore ways of enabling small and medium size businesses to enrol their employees in the scheme, while strengthening monitoring and enforcement systems to compel employers to register for the scheme.
3. Introduce a subsidised pension scheme for informal workers
The majority of Pakistan’s labour force works in the informal sector – including agriculture – and is self-employed. This proposal calls for the government to introduce a subsidised and simplified contributory scheme for informal workers.
This scheme would also contribute to a gender responsive pension system, as many women and transgender people work in the informal sector.
4. Immediately a social pension to provide basic income security for older people without a pension
In a representative survey of older people in Pakistan conducted in 2019, nearly 40 per cent reported having no income at all, while a further 28 per cent had average monthly incomes of less than PKR 10,000 (USD 65). The situation of older women is even more precarious, with two-thirds having no income at all.
To ensure that all older people have at least basic income security, the government should follow the example of more than 100 countries globally and implement a social pension. The social pension can be “pension-tested” and be restricted to those who do not have any pension. With the above recommendations, the coverage of the contributory pension would grow over time, leaving fewer people dependent on the social pension.
Almost every second older person in Pakistan lives with a disability, older women are unlikely to have any income security like a pension, and older transgender people are frequently discriminated against and excluded, leaving them dependent on community charities. Something must be done.
These four policy reforms would contribute to a better resourced social protection system without creating an undue burden on the government. If they were put into practice, we might be able to live in a country where it would be possible for each older person would be able to say: “I have a pension”.