According to the State Bank of Pakistan, public sector pension spending has gone up exponentially within Fiscal Year (FY) 2021—accounting for 18.7 percent share of the total tax revenue. This is a problem that could affect the country negatively in the long term, as such high spending creates an unstable economic structure that disables the government to cater to other expenses of the state.
The pension payment system of Pakistan is one that is proving to be a massive burden on the economy primarily because it is unfunded in nature. We follow a pay-as-you-go (PAYG) system through which retirement benefits are guaranteed to even those employees who fail to make personal contributions from their salaries. Furthermore, an increase in life expectancy rates entails that pensions are paid out for a longer period of time, thereby exaggerating the problem. Even the fact that investment returns have been lower than expected is also likely to lead towards a shortfall that takes away from other valuable ventures of the government.
If we do not address this issue and brush it under the rug, we may as well see our economic decline worsen in an already tough economic climate. Already, according to the World Bank, civil service pensions are set to overtake overall wage expenses by the years 2023 and 2028 in Punjab and Sindh. This would be catastrophic as the country would be paying its unproductive workers more than its productive ones.
As such, what we need right now is to come up with a sustainable strategy that carries the weight of the expense and emphasizes the importance of reinvesting pensions and provident funds into government campaigns so as to keep the momentum flowing. This is a sure-fire way through which the government can ensure income generation all the while allowing for the masses to enjoy retirement benefits.
