Pakistan

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).

Key indicators: Pakistan
		Pakistan	OECD
Average worker earnings (AW)	PKR	144 168	6 567 800
	USD	860	39 178
Public pension spending	% of GDP		7.7
Life expectancy	at birth	66.4	80.2
	at age 65	13.0	19.1
Population over age 65	% of working- age population	8.7	30.2

Qualifying conditions

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).

Benefit calculation

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.

Variant careers

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.

Personal income tax and social security contributions

Taxation of worker’s income

Taxable Income in PKR	Rate of Tax
0 to 600 000	0%
600 001 to 1 200 000	5%
1 200 001 to 1 800 000	10%
1 800 001 to 2 500 000	15%
2 500 001 to 3 500 000	17.5%
3 500 001 to 5 000 000	20%
5 000 001 to 8 000 000	22.5%
8 000 001 to 12 000 000	25%
12 000 001 to 30 000 000	27.5%
30 000 001 to 50 000 000	30%
50 000 001 to 75 000 000	32.5%
Above 75 000 000	35%

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.

Pension modelling results: Pakistan in 2058 retirement at age 60 (men)

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.

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