The notion of a formal retirement age was introduced by Otto von Bismarck, the Chancellor of Germany, in 1889, to provide financial support for elderly workers who were no longer productive in the labour force. The retirement age was initially established at 70 years but subsequently lowered to 65 years due to the exigencies of World War I, which precipitated labour shortages. The government aimed to facilitate the early exit of older workers from the labour force, thereby reallocating job opportunities for younger individuals capable of fulfilling military obligations or essential economic roles. Similarly, the US introduced a formal retirement age of 65 under the Social Security Act during Franklin D. Roosevelt’s 'New Deal' in 1933 to create economic security during the Great Depression and relieve older workers from labour while providing younger workers with opportunities. In both instances, the rationale was underpinned by the predominant motivation to smoothly transition the older workforce into retirement and to bring younger into employment.
In Pakistan, around 64% of the total population is below the age of 30 years with an unemployment rate of approximately 32%, out of which a majority hold professional degrees. Pakistan’s social security system is primarily designed to benefit public sector employees. The private sector is left relatively unregulated in Pakistan, while the formal sector employees are negligibly regulated by the Employees Old-Age Benefits Institution (EOBI) where both the employer and employee contribute. Those in the informal markets, as well as those who are self-employed, are left unprotected. So for instance, if you are a self-employed tax-paying lawyer, after you reach an age where you can no longer work, old-age benefits will not await you. Key programmes, such as the Workers Children Education Ordinance, Workers Welfare Fund (WWF), Public Sector Benevolent Funds, Group Insurance, Provincial Employees Social Security Scheme, and the Government Servants Pension Fund collectively target and provide coverage mainly to the public sector workforce, leaving much of the informal sector underserved.
Pakistan lacks a system of unemployment benefits and a comprehensive citizen’s pension scheme. Moreover, according to the International Labour Organisation (ILO), its 27 million informal workers are left completely without coverage from employment-based contributory schemes. The largest pension system only serves federal and provincial government employees, the armed forces, and state-owned enterprises (SOEs). It is a non-contributory, defined benefit (DB) system in which employees do not contribute directly to the pension fund during their employment. Instead, the government fully funds the pension benefits. Such a system faces serious sustainability issues due to the growing fiscal burden on the state, exacerbated by an aging population, increasing life expectancy, and an expanding public workforce owing to an exponential increase in population.
A lower retirement age opens up jobs for younger individuals entering the labour market, reducing youth unemployment and fostering smoother workforce transitions. This is particularly important in burdened economies like Pakistan with high levels of unemployment among younger populations
In view of the foregoing, Pakistan needs to contemplate what necessitates the proposed increase in the retirement age as envisioned in the new amendments to the Constitution, which suggest raising the retirement age for judges of the Constitutional Court to 68, in contrast to the standard retirement age of 65 for judges in other courts. Since Pakistan does not have a universal pension plan for all, it is unreasonable to increase the retirement age of public officials and bureaucrats, further availing them at the cost of increased fiscal spending while disadvantaging the youth, the tax-paying self-employed, as well as the informal workforce.
In a 2016 study, Tito Boeri et. al. found that Italy's 2011 pension reform, which raised the retirement age, led to reduced youth hiring. Firms with older workers affected by the reform saw a significant decrease in youth employment, with every five older workers locked in for an extra year, reducing youth hiring by one full-time position. Out of 150,000 youth job losses in Italy, 36,000 were attributed to this reform, showing the negative impact of delaying retirement on youth employment. Given Pakistan's demographic youth bulge, can the economy sustain increasing retirement ages for all, without exacerbating unemployment for the majority of the population, and hindering economic growth?
A lower retirement age opens up jobs for younger individuals entering the labour market, reducing youth unemployment and fostering smoother workforce transitions. This is particularly important in burdened economies like Pakistan with high levels of unemployment among its younger populations. By retiring older workers earlier, the economy can benefit from new talent and innovation, ensuring that companies and industries remain competitive with a younger, more adaptable workforce. It is no secret that as workers age, their physical and mental capacities decline, which can reduce productivity. By allowing workers to retire earlier, particularly those in high-stress or physically demanding jobs, governments can potentially lower long-term healthcare costs associated with treating workplace injuries, chronic stress, or lifestyle diseases exacerbated by long working hours in older age.
The policymakers in Pakistan must revisit the origins of the rationale of retirement age, especially in light of the youth bulge in Pakistan which is alarmingly unemployed. The idiosyncratic nature of the prevailing problems in Pakistan requires strategies to open up opportunities for younger workers to enter the job market, reducing unemployment and fostering economic growth. If the retirement ages of public officials are increased, the private sector may have to follow suit, thereby disadvantaging the younger population.
Research conducted by Furlong, A. and Cartmel, F. amongst others indicates that younger workers often learn new skills faster due to their familiarity with technology and adaptability. A 2020 study published by the World Economic Forum highlights that younger generations are more likely to be "digital natives," making them more comfortable with emerging technologies like artificial intelligence, automation, and data analysis tools, which can enhance their capacity to learn new skills quickly.
With the aforementioned in view, it is imperative to rigorously evaluate and substantiate the rationale behind any proposed ad-hoc constitutional amendment regarding retirement age(s) before advancing toward its enactment.