Introduction
Pakistan’s public pension system is quietly evolving into one of the nation’s most pressing fiscal challenges. Every year, more taxpayer money is directed toward retired government employees, leaving fewer resources for education, healthcare, and development. Yet, the majority of the elderly population receives no support. With costs rising rapidly and benefits concentrated among a small group, Pakistan faces a system that is financially unsustainable and socially inequitable unless urgent reforms are implemented.
The Growing Burden
Two decades ago, pensions were a minor part of the national budget. Today, they consume over 2% of GDP, rivaling total government health spending. The Ministry of Finance notes that pension expenditures have increased nearly 50-fold over 20 years, doubling approximately every 4–5 years. Generous rules, automatic annual increases, and longer life expectancy amplify the strain, with payments funded directly from current revenues rather than pre-saved contributions.
Who Gets Pensions, and Who Doesn’t
Despite the rising cost, only a small fraction of Pakistanis benefit from pensions. Private-sector employees, informal workers, and farmers are largely excluded, leaving most older citizens dependent on family or charity. The result is a system that is both expensive and inequitable, favoring retired public servants while neglecting the broader population.
EOBI: A Limited Safety Net
The Employees’ Old-Age Benefits Institution (EOBI) serves as the primary pension program for private-sector workers. In 2025, its fund reached around Rs600 billion, covering roughly 800,000 pensioners. However, it remains a fraction of the workforce, as informal employment dominates Pakistan’s labor market. While EOBI’s growth is positive, it cannot offset the much larger burden of unfunded government pensions.
A Warning from Experts
The IMF and World Bank have repeatedly flagged Pakistan’s pension system as unsustainable. Without major reforms, pension spending could rise by several GDP points, forcing higher taxes, reduced public services, or increased borrowing. Recommended measures include:
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Introducing contributory pensions for new public-sector employees.
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Limiting automatic annual increases tied to political decisions.
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Enhancing transparency on total pension liabilities.
Provinces like Punjab and Khyber Pakhtunkhwa have begun exploring these reforms, but political resistance slows implementation.]
Why Reform Is Difficult
Pensioners are a powerful and politically sensitive group. Reducing or altering benefits is unpopular, making governments hesitant to act. This has led to continued ad-hoc increases, such as the 15% rise in 2024, which exacerbates the long-term problem. Meanwhile, new employees remain uncertain about their future benefits, perpetuating a system that favors short-term comfort over long-term stability.
What Needs to Change
Experts broadly agree on reforms to ensure fiscal sustainability and social equity:
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Establish a contributory pension system for new employees, with both workers and employers contributing.
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Tie annual increases to inflation rather than ad-hoc decisions.
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Expand support for informal-sector retirees through social pensions or cash transfers.
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Publicly disclose pension liabilities to increase accountability and awareness.
Conclusion
Pakistan’s pension system is draining public resources, favoring a few while leaving the majority without support. Every year of delay increases financial risk and societal inequity. To secure the future, the nation must implement reforms that balance fiscal responsibility with social justice, ensuring retirees live with dignity while protecting the country’s development potential.
