Pakistan: Pension system in 2020
Workers of an industry or establishment with 5 or more employees are required to be insured under earnings-related pension called employees’ old-age benefit scheme.
The model assumes that workers are covered by the earnings-related pension (EOBI).
Normal pension age for earnings-related private sector pension is age 60 for men and 55 for women with 15 years of contribution (relaxation is provided for those joining the scheme at older ages).
Earnings-related
The pension is calculated as average monthly wages multiplied by number of years of insurable employment divided by 50. The indexation rule for pension in payment is discretionary and the model assumes price‑indexation.
Minimum pension
Minimum pension is PKR 8 500 per month. Indexation for pension in payment is discretionary and the model assumes price‑indexation.
Old age grant
A lump sum of one month of the insured’s average monthly earnings for each year of contributions is paid for those with at least two but fewer than 15 years of contributions.
Early retirement
The earliest age at which men can start claiming pension is 55 and this is 50 for women.
The reduction applied is 0.5% for each completed month by which age at retirement falls short of 60 (55 years for women). This reduction is also applicable to the minimum pension.
Late retirement
It is possible to start receiving pension after normal pension age.
Taxation of worker’s income
Social security contributions payable by workers
Employer pays 5% of the minimum wage (PKR 13 000) and employee pays contribution at the rate of 1% of minimum wage.
Taxation of pensioners
The additional tax relief for those aged 60+ is 50% for taxable income less than or equal to PKR 1 000 000.
Taxation of pension income
All benefits received from the EOBI on retirement or death are not taxed. Lump-sum benefit from Voluntary Pension System is exempt however, pension payments are taxed.
Social security contributions payable by pensioners
Pensioners do not pay any social security contributions.
Note: Real rate of return 3%, real earnings growth 1.25%, inflation 2%, and real discount rate 2%. All systems are modelled and indexed according to what is legislated. Transitional rules apply where relevant. DC conversion rate equal 90%. Labour market entry occurs at age 22 in 2020. Tax system latest available: 2020.
Source: OECD pension model.