Govt mulls lowering retirement age to 55 as part of pension reforms

The federal government is considering reducing the retirement age to 55 from the current 60 years for government employees to manage the rising pension burden. 

According to a report by Dawn, this proposal, suggested by an international lender, is part of broader pension reforms under review. Reducing the retirement age by five years could lower annual pension expenses by Rs50 billion if implemented universally. 

The government is considering a phased rollout to manage the initial surge in severance costs. The move could also open opportunities for skilled public sector employees to transition to the private sector.

Pakistan’s current federal pension bill exceeds Rs1 trillion, with Rs260 billion allocated for civil servants and Rs750 billion for armed forces personnel. To mitigate the growing liability, the government recently introduced a contributory pension scheme for new hires.

Officials said public sector corporations, regulatory authorities, and professional councils might also be instructed to adopt similar retirement age reductions. Financial requirements for these reforms would be managed by the respective entities, without reliance on federal resources.

The finance ministry last year proposed increasing the superannuation age to 62 to temporarily delay retirement payouts, but the establishment division opposed the idea. 

Currently, pensions are calculated based on the last drawn salary, capped for those completing 30 years of service.

At a meeting chaired by Finance Minister Muhammad Aurangzeb, the Economic Coordination Committee (ECC) raised concerns over delays in implementing earlier decisions on pension reforms. These reforms include amendments proposed in May and June, which remain stalled due to prolonged consultations with stakeholders.

A leading multilateral institution suggested that reducing the retirement age could shorten pension payout durations and lower overall liabilities. However, officials warned of potential challenges, including the upfront costs of severance packages and the loss of experienced personnel, which could affect productivity and efficiency.

Globally, retirement ages vary, ranging from 55 to 60 in countries such as India, Malaysia, Indonesia, and Thailand. In Pakistan, a report by the Pakistan Institute of Development Economics (PIDE) highlighted that pension expenditures have surged from Rs164 billion in 2011 to Rs988 billion in 2021.

The report emphasized that pension liabilities are largely unfunded, creating sustainability risks. It noted federal pension expenditures, including military pensions, increased more than five times in the last decade, while tax revenues grew only 2.7 times during the same period.