The federal government of Pakistan is considering lowering the retirement age for government employees from 60 to 55 years as part of broader pension reforms. The proposal, suggested by a multilateral lending agency, aims to address the country’s mounting pension burden, which has reached alarming levels in recent years. If implemented across the board, reducing the retirement age by five years could save the government an estimated Rs50 billion annually.
However, experts caution that this strategy may not yield long-term benefits and could significantly increase upfront costs due to enhanced pension payouts and severance packages. Hasaan Khawar, an international development specialist who has studied Pakistan’s pension crisis extensively, believes that lowering the retirement age “doesn’t make sense.” He argues that the only saving would come from a lower last-drawn salary used to calculate pensions, while long-term benefits would be negligible. Former State Bank governor Dr.
Ishrat Hussain, who led the pension reforms commission set up by the PTI government, agrees that the downsides of a lower retirement age outweigh the potential benefits. He supports maintaining the retirement age at 60 and suggests that excluding allowances from the final basic salary calculation could drastically reduce pension liabilities.
Considering pension reforms and retirement age
Both Dr. Hussain and Mr. Khawar advocate for parametric reforms to reduce the pension burden, such as revising the formula for calculating pensions, imposing penalties on early voluntary retirement, and changing family pension regimes.
The federal pension budget currently exceeds Rs1 trillion, with Rs260 billion allocated for civil servants and Rs750 billion for armed forces personnel. The burden is projected to double every four years, a trajectory that is clearly unsustainable. The government has recently introduced a contributory pension fund scheme for new civil government employees, with a similar scheme for new military recruits set to start from the next financial year.
Other reforms include penalties on early voluntary retirement, the abolition of multiple pensions, and changes in family pension regimes. The federal government is evaluating the financial and legal implications of reducing the retirement age, weighing the potential impacts before making a final decision. Public sector corporations, regulatory authorities, and professional councils may also be instructed to adopt similar retirement age reductions, with financial requirements managed by the respective entities.
