Social Security and Pension System in Pakistan
What are the laws in Pakistan on provision of social security/pensions in Pakistan? Please also explain the type of benefits provided under the legislation.
The Government of Pakistan had promulgated the Employees’ Old-age Pensions Ordinance in 1972. However, this was never implemented. Later on, in 1976, this was substituted with an act of parliament, called Employees’ Old-Age Benefits Act, 1976. This social insurance system was started to achieve the objective of article 38 (c) of the Constitution, which is as under:
The State shall:
Provide for all persons employed in the service of Pakistan or otherwise, social security by compulsory social insurance or other means;
This Act is applicable to the private sector only while Government has created special systems for public-sector employees (where Civil Pension Rules are applicable); members of the armed forces; police officers; and employees of statutory bodies, local authorities, and railways. Other than these, Government is also managing other social assistance programs for the welfare of destitute and needy citizens. Under the Zakat and Ushr Ordinance, 1980, benefits are provided to the poor Muslim citizens of Pakistan while under the Pakistan Baitul Mal Act, 1992 and Benazir Income Support Program Ordinance, 2010 (program was started in 2008); assistance is being provided to all the citizens of Pakistan irrespective of their religion.
Employees’ Old-Age Benefits Act is applicable on all firms (industrial or commercial, including banks) where 5 or more workers, whether contractual or regular, are employed or were employed during past 12 months. The laws remains applicable even if the number of persons employed is subsequently reduced to less than five. The business with less than five employees can get their employees registered with EOBI on voluntary basis.
As for the benefits, it provides following four types of benefits to insured persons or their survivors.
- Old-Age Pension (or Reduced Pension)
- Survivors’ Pension
- Invalidity Pension
- Old-Age Grant (if an employee is not eligible for pension)
Employees’ Old-Age Benefits Institution (EOBI) manages implementation and enforcement of this act. EOBI is a semi-autonomous institution working under auspices of Ministry of Overseas Pakistanis and Human Resource Development (the erstwhile Ministry of Labor and Manpower). A tripartite corporate Board of Trustees manages working of EOBI where, along with the Government officials, labour and employer representatives are also present. The number of employees registered with EOBI exceeds 3 million while 360,000 of these registered workers are getting pension benefits. EOBI has detected another 3 million cases where contributions on account of employees are not being paid.
Can you please explain more the above-mentioned benefits?
Chapter V of the Act talks about these benefits and requires the payment of monthly old age pension to an employee if;
- He is 60 years of age (in case of a woman worker, age limit is 55 years; age limit is also 55 years for male miners engaged in mining for at least 10 years of employment)
- Contributions in respect of him/her were paid for at least 15 years
If an insured employee has retired five years before reaching the retirement age, he/she shall be entitled to an early but reduced old-age pension. In that eventuality, the pension will be reduced by half a percent (0.5%) on monthly basis or 6% on yearly basis. So, a reduced pension can be paid to early male retirees from the age of 55 to 59 and female retirees from the age of 50 to 54.
The Act provides for invalidity or disability pension if an employee sustains an employment injury, as defined in the act, and suffers an earning capacity loss of at least 67%. In this case, he is entitled to invalidity pension provided that he must have:
- At least 15 years of contributions or
- At least 5 years of contributions of which at least 3 years must be in insurable employment
The invalidity pension has to be paid as long as invalidity persists; however, if an employee has been in receipt of disability pension for at least 5 years, he becomes entitled to invalidity pension for life. And if a person reaches retirement age while receiving invalidity pension, his invalidity pension automatically converts into old-age pension
The Act also provides for Survivors’ Pension (which is equal to minimum pension) after the death of an insured person in insurable employment for a period of at least 3 years. If the deceased had become eligible for old age or invalidity pension, the spouse will receive that pension of deceased for lifetime. In case of death of spouse who was receiving the insured person’s pension, this pension will be divided among children in equal share, until they attain the age of 18 years (or in the case of girls, before she marries or attains the age of 18 years; whichever comes earlier, however, Since July 2010, daughters can receive this pension until their marriage). In case an insured person has not left a spouse or children behind, his parents would be entitled for the survivors’ pension for a period of 5 years.
Before we talk about old age grant, it seems worth mentioning here that since April 2015, minimum pension (Old-age, invalidity and survivors’ pension) has been raised from PKR 3,600 to PKR 5,250. Further, Old Age, Disability and Survivors’ pensions are calculated according to a formula explained as under:
Formula for Calculation= 2% of the average monthly earnings in last year X total number of years of insurable employment
In case an employee’s old age or invalidity pension is less than PKR 5,250, he is to be paid the minimum pension and if his pension is higher than this amount, he will be paid that higher amount. It is pertinent to mention here that this law does not allow duplication of benefits i.e., if an employee is eligible for more than one benefits, he can receive only one benefit; whichever is higher.
Old-Age Grant is paid to those employees who are not eligible for old-age pension, as they don’t meet the requirement of 15 years of contributions. However, if these employees have at least completed 2 years of insurable employment, they are entitled to a lump sum payment of one month of earnings, for each year of insured employment.
You have talked about payment of contributions. Can you please tell the rates of contribution by employer and employees?
In accordance with Chapter III of the Act, an employer is required to submit his and employee’s contribution to a bank designated by EOBI before 15th of every month. An employer has to pay contribution equal to 5% of the minimum wage while an employee has to pay that contribution at the rate of 1% of minimum wage. For Federal areas, the minimum wage rate at which the contributions are collected has been raised to PKR 13,000 through an amendment in the Minimum Wages for Unskilled Workers Ordinance, 1969. Thus, in Islamabad Capital Territory:
- An employer has to pay (5% of PKR 13,000= PKR 650)
- An employee has to pay (1% of PKR 13,000= PKR 130)
- An employer has to pay (5% of PKR 8,000= PKR 400)
- An employee has to pay (1% of PKR 8,000= PKR 80)
So, in total, employers have to submit PKR 780 (or 480 rupees) rupees for every insured employee, no matter what is his income level. Other than employer and employees, federal government may also make contribution to make up any deficiencies. It seems relevant to mention here that even self employed and those not covered under this act can also become eligible for different benefits mentioned above, if they submit contributions for required period of time.
You have talked about insured person and insurable employment. Can you please explain these terms?
In accordance with the provisions of this act, an insured person is the one who is or was in an insurable employment while this insurable employment is the one for which contributions are payable. As mentioned before, this act is applicable to all types of establishments where 5 or more persons are employed directly or indirectly.