PSX suggests: Certain percentage of government-funded pension scheme be invested in capital market

Pakistan Stock Exchange Limited (PSX) has recommended that a certain percentage of the government funded pension scheme be invested in the capital market to avert a future pension crisis and encourage capital formation in Pakistan. Budget proposals for 2019-20 submitted by the PSX to the Ministry of Finance revealed that the government should start funding its pension liabilities to avert a future pension crisis and encourage capital formation in Pakistan. An adequately funded pension scheme would offer old age benefits to retired employees at public sector enterprises and government workers, without putting burden on the annual budget. Further, it is recommended that a certain percentage of the funded pension scheme be invested in the capital markets.
With Pakistan facing very high levels of poverty and the government facing a rise in the old age population and having a scarcity of resources and funds to provide any old age benefits, an adequately funded pension scheme is one of the resources which the government could offer to facilitate retired public sector employees.
In this regard, appropriate amendment to be made in the Income Tax Ordinance, 2001 in coming budget (2019-20). The PSX said that at present, Pakistan's pension scheme for government employees is an un-funded, pay-as-you-go scheme. The government exclusively finances the pension expenditure by obtaining a provision in the annual budget for this purpose. This has all the making of an impending pension crisis in future, and places unfair burden on future generations.
In case of public sector enterprises too, much of the pension liability remains un- funded. The future monetary obligations are taken to be met from future taxation, which places undue fiscal burden and responsibility on future generations. Age analysis of population suggests growing state pension expenses given the expected increase in the older age group.
These conditions have led to increasingly stressed pension arrangements. Pension system reforms are focused on extending coverage to funded pension systems, which are professionally managed, extend to the informal sector, and facilitate switching from the existing employer schemes. While in the public sector, funds have been created at the provincial level to pre-fund the future liability. Avoiding a looming pension crisis governments in various countries have actively worked to provide financial security for their aging populations by maintaining adequately-funded pension funds. These pension funds invest in a diversified range of global assets including equities, bonds, mutual funds, ETFs, and even real estate, infrastructure and alternative assets.
An actively managed government pension fund in Pakistan will also help channel investment towards capital markets, since equities feature heavily at global pension funds. In Pakistan, the federal government could set up such an investment holding as a single-purpose asset management company with 100% control, and run by professional investment managers, the PSX added.