Many emerging economies were moving towards prosperity and growth by the late 2010s. However, the start of the 2020s reversed all of those nations’ advancements, leaving them in much greater misery. In addition to driving hundreds of thousands of people below the poverty line, causing food insecurity, and growing wealth inequality disparities in civilizations around the world, the Covid-19 pandemic initiated a downhill decline in global economies. Unemployment in low-income and lower-middle-income nations has increased as a result of a string of crises, according to a new International Labor Organization (ILO) report.
According to the ILO, the countries’ GDP per capita could rise by 14.8% in ten years and extreme poverty could be lowered by 6% with the aid of a strong pension system. For Pakistan, which is preparing to present its budget for 2023–24 on June 9, this recommendation is crucial. Higher-ranking employees in Pakistan, who often come from the privileged class of the nation, receive a sizable monthly pension, which places additional strain on the state’s limited financial resources. But chances like these are rare for those who come from lower-middle or lower-class families.
In this region, social protection programs are rarely considered as the necessary measures to help the poor but rather as a government’s attempt to sway citizens into giving them another term in office. Older workers who retire from public sector organizations receive a monthly payment thanks to a smooth pension system. However, there are certain. For example, most persons who retired decades ago continue to receive an amount based on the meager salaries they earned at the time of their retirement.
The private sector, which is infamous for not providing incentives to employees, employs the majority of Pakistan’s working force. People are frequently hired by businesses on a contract basis, which precludes them from receiving post-retirement benefits. However, just a handful contributes a provident fund. However, because there isn’t any fixed-term deposits available to people, they run out of money as soon as they lose their jobs. People take up menial work after they officially retire in order to have some type of consistent income to maintain their houses because “retirement age” is barely a consideration in the country.
The nation cannot continue to function in this manner, particularly given the continuing default risks. Employers who keep provident funds should put their money into profitable businesses so that people can profit from them. More workers must be included in organizations like the Employees’ Old-Age Benefits Institution. To determine how to build up pension funds for individuals, the finance division must meet with officials from the private sector. To persuade people to choose the savings route, it is also crucial to inform them of the Islamic financial products that are readily available on the market.
There are two main options available to us: either centralized pension funds at the federal and provincial levels for both defined benefits (pension plans) and defined contributions (retirement benefits); or decentralized pension funds. Or a combination of decentralized supplementary funds for defined contributions and centralized defined benefits for pensions.
Similar to the Turkish Pension Fund (Oyak), the Supplementary Fund for the Military Pension Fund for Defined Contributions is a possibility. However, in order to determine the potential advantages that these funds may provide, an actuarial study must be conducted.