The landmine of pensions.

Calling the pension bill a time bomb is a constant refrain of Pakistani economists. But the deadly device is designed to go off at a preset time - quite unlike our national pension bill, which is mounting at an accelerating pace and may explode without much notice.

The federal government has set aside Rs530 billion for pensions in 2022-23, slightly higher than the revised allocation of Rs525bn for the outgoing fiscal year.

More importantly, the finance minister indicated in his budget speech that the federal government is going to set up a 'pension fund' with the expected first-year allocation of Rs10bn. At the same time, the government has withdrawn the income tax credit that individuals received by putting their savings in pension funds run by asset management companies.

Speaking to Dawn, Alpha Capital Ltd CEO Azfer Naseem said the new pension fund will be set up along the lines of similar pools of money established by the provinces in recent years. 'They're putting in the seed capital now. Hopefully, they'll keep building up the fund until its profits are big enough to make pension payments on a sustainable basis. It's just a start,' he said.

The practice of pensioners receiving money directly from government revenues as part of current expenditures is inherently unsustainable

The latest allocation is equal to 0.7 per cent of GDP. It constitutes 6.1pc of the federal government's total current expenditures for 2022-23. Does it really make sense to call it a ticking bomb?

'Yes, it does. People retiring now will have higher pensions versus those who retired earlier. The additions to the pensioners' roll are taking place at a faster pace than deletions,' he said.

The pay-as-you-go system with defined benefits currently in place is resulting in increased unfunded liabilities for the government.

According to a recent research paper by Mahmood Khalid, Naseem Faraz and Muhammad Ashraf published in Pakistan Development Review, the practice of pensioners receiving money directly from government revenues as part of current expenditures is 'inherently unsustainable'. The pension expenditure - which is doubling every four years - cannot be sustained by an economy that's growing at a significantly lower rate.

An ageing population, increased medical expenditures and forced inflation indexing will continue to put pressure on the pension bill, they said, noting that it'll constitute as much as 56pc of current expenditures by 2050.

In a phone interview...