Amid ongoing debates about pension reforms, the federal government is exploring the possibility of reducing the retirement age from 60 to 55 years to manage its growing pension liabilities. This proposal, suggested by an international lender, is under consideration alongside other measures as part of broader pension system reforms, a senior official confirmed.
The plan aims to cut the annual pension bill by approximately Rs50 billion if applied universally. However, implementation is likely to be phased, considering the initial financial strain of severance packages. The move could also pave the way for skilled public sector employees to transition into the private sector, boosting workforce mobility.
Currently, the pension liability exceeds Rs1 trillion, with Rs260 billion allocated for civilian pensions and Rs750 billion for armed forces. To tackle the escalating costs, the government has already introduced a contributory pension scheme for new employees.
While the proposal to reduce the retirement age offers potential benefits, such as shorter pension payout durations and reduced liabilities, it also carries significant challenges. The upfront costs for severance packages and the potential loss of experienced personnel could impact government efficiency and productivity.
A finance ministry source noted that countries like India, Malaysia, and Thailand have retirement ages ranging from 55 to 60, suggesting that a lower retirement age aligns with regional practices. However, a recent Pakistan Institute of Development Economics study warned of the unsustainable growth in pension expenditures, which have surged over fivefold in the last decade compared to a 2.7-fold increase in tax revenues.
With mounting fiscal pressures, the government is balancing financial savings with the potential socioeconomic impacts of this significant policy shift. Detailed consultations with stakeholders are underway, but officials have hinted that any changes would take time to implement.
