Pakistan

Pakistan: Pension system in 2016

Workers of an industry or establishment with five 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 earnings	PKR	160 280	3 819 683
	USD	1 537	36 622
Public pension spending	% of GDP	0.5	8.2
Life expectancy	at birth	66.7	80.9
	at age 65	14.3	19.7
Population over age 65	% of working- age population	7.4	23.4
StatLink https://doi.org/10.1787/888933873706

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 2% of the insured’s average monthly earnings in the last 12 months multiplied by the number of years of covered employment. Indexation rule for pension in payment is discretionary and the model assumes price-indexation.

Minimum pension

Minimum pension is PKR 5 250 per month. Indexation for pension in payment is discretionary and the model assumes price-indexation.

The amount of (both maximum and minimum) insured monthly wage is PKR 15 000.

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 workers

Taxable Income in PKR	Rate of Tax
0 to 400 000	0%
400 000 to 500 000	2% of the amount exceeding 400 000
500 000 to 750 000	2 000 + 5% of the amount exceeding 500 000
750 000 to 1 400 000	14 500 + 10% of the amount exceeding 750 000
1400 000 to 1500 000	79 500 + 12.5% of the amount exceeding 1400 000
1 500 000 to 1800 000	92 000 + 15% of the amount exceeding 1 500 000
1 800 000 to 2500 000	137 000 + 17.5% of the amount exceeding 1 800 000
2 500 000 to 3000 000	259 500 + 20% of the amount exceeding 2 500 000
3 000 000 to 3500 000	359 500 + 22.5% of the amount exceeding 3 000 000
3 500 000 to 4 000 000	472 000 + 25% of the amount exceeding 3 500 000
4 000 000 to 7 000 000	597 000 + 27.5% of the amount exceeding 4 000 000
7 000 000 and above	1 422 000 + 30% of the amount exceeding 7 000 000

Social security contributions payable by workers

Employer pays 5% of the minimum wage (PKR 15 000) and employee pays contribution at the rate of 1% of minimum wage.

Taxation of pensioners

The additional tax relief for older people is 50% for taxable income less than or equal to PKR 1000 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.

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