As discussions about raising retirement ages for certain roles continue, the government is exploring reducing the average superannuation age to 55 to manage pension costs effectively. This reduction, recommended by an international lender, is part of broader pension reforms under federal review.
Previously, the finance ministry suggested increasing the retirement age to 62 to postpone pension payments, but the establishment division rejected this idea. Government pensions are calculated based on the final basic salary drawn at 60, often limited to 30 years of service.
At a recent meeting, the Economic Coordination Committee (ECC), chaired by Finance Minister Muhammad Aurangzeb, highlighted delays in pension reform and the establishment of a future roadmap. These delays stem from the need for extensive consultations with stakeholders.
If implemented across the board, lowering the retirement age by five years could reduce pension liabilities by about Rs50 billion annually. This approach would initially raise costs due to early severance packages, leading the government to consider a phased implementation. This method could also help public-sector employees transition to private-sector roles.
The federal pension expenditure now surpasses Rs1 trillion, split between civil and armed forces. The government introduced a contributory pension scheme for new employees to control escalating pension costs.
The government is evaluating this scheme’s legal and financial aspects for federal employees and its possible adoption by the provinces. It also urges public sector corporations, regulatory authorities, and professional councils to reduce retirement ages. These entities will independently fund their retirement benefits through their resources or external innovative solutions.
Finance ministry sources say that a major multilateral organization sees potential budget benefits in reducing retirement age, including reduced long-term pension liabilities and decreased pension payments. Shortening the duration of pension payments could cut overall pension costs. However, early retirements could also increase upfront costs and lead to a loss of experienced workers, potentially affecting productivity and placing additional strain on social security systems.
In comparison, retirement ages in countries like India, Malaysia, and Thailand range from 55 to 60 years. According to a study by the Pakistan Institute of Development Economics, government pension spending has grown unsustainably over the past decade, significantly outpacing tax revenue increases and underscoring the need for fiscal sustainability in pension funding.
