By Muhammad Soban ISLAMABAD, Nov 09 (INP-WealthPK): The amount of Pakistan’s public sector pension bill crossed Rs480 billion in 2021, which was Rs150 billion in 2020. According to a projection by the federal government, the amount of pension expenditure is expected to reach an alarming level of Rs750 billion in the year 2023. Prime Minister Imran Khan terms this sharply rising pension bill an even more severe problem than circular debt. Government employment has always been attractive due to job security and pension. Unlike other countries, Pakistan has not reformed its pension system. There are two main types of pension programmes that are being practiced in the world. One is Defined Benefit (DB) in which the entire responsibility and liability rests on the government. In this programme, a specific amount is paid on retirement. Currently, Pakistan is practicing this defined benefit system. This is an old programme that is piling up the unfunded liability for the government. Pakistan is paying pension directly from current revenue as part of current expenditure. According to a research study by the Pakistan Institute of Development Economics (PIDE), pension expenditures grow 25 percent annually. Pension expenditures are approximately 80 percent of the Public Sector Development Programme (PSDP). The study also projected that it will increase to 56 percent of current expenditure by 2050. The second type of pension programme is a Defined Contribution (DC). In DC, an employee contributes a portion of salary to pension funds. These funds are invested overtime to save for retirement. Governments usually provide tax relief on this type of pension. The benefits at retirement will depend on different factors such as the contribution levels, how the investment fund performs, plan charges and fees, and the annuity rates available when an employee retires. The world has gradually transferred from the Defined Benefit programme to defined contribution programme. Pakistan pension crisis is becoming worse every year. There is significantly less time left to transform the pension programme from DB to DC. In 2003, the Pension Review Working Group had recommended the funded pension scheme with DB part to be financed by the state and DC by employees. But these recommendations were not approved by the government. The DB system has multiple pay-outs to pensioners. It is becoming increasingly difficult to finance pension expenditures from the current taxpayer’s money. In 2008, the National Commission for Government Reforms (NCGR) recommended that the pension system be reformed and transformed from DB to DC. It also proposed that the pension system should be funded by sources other than the government. The research study of PIDE in a projection for the future suggested that if Pakistan transforms its pension programme from DB to DC, the percentage of pensions in current expenditures would decline over the years, as shown in the following graph. It is supposed that if the existing pensioners get the same pensions as they are now, the current expenditure is likely to increase by 5 percent annually. According to budget estimates of 2019-20 of Civil Federal Pensions, it is projected to remain constant for the next five years and then decline 5 percent per annum due to the reduction in exiting pensioners. Three situations of DC funded by the government of 25, 20, and 15 percent are developed. The final outlay of DC and ongoing existing pensions expenditure as a percentage of current expenditures is plotted in the graph. The study shows that initial expenditures of pension are increased by 1.5 to 1.83 percent of total current expenditure in all three cases in the first year of reforms. Then it starts declining in the following years. The graph shows a sustainable decline in pension expenditure in the long run. So, it can be concluded that the shift of pension programme from DB to DC is critically essential. To generate revenue, a regulatory body should manage these contributions and invest in housing schemes, private equities and venture capital.