Pakistan Case Study - How Incentives Can Boost Pensions For Informal Sector Workers

Overview

This case study examines Pakistan’s efforts to develop a funded pension framework in a labour market where informal workers make up 84% of employment, and gender gaps in employment and financial access are substantial. Policy makers have promoted a shift toward defined contribution pensions through the Voluntary Pension System (VPS). Recent reforms have introduced Employer Pension Funds, allowing employers to establish voluntary funded schemes within the VPS framework. Despite these reforms, pension participation among informal workers remains negligible. Current incentives rely almost entirely on tax relief, which primarily benefits higher-income taxpayers, leaving most informal workers without effective incentives to save.

Pakistan’s experience highlights the need for targeted matching contributions, integration with the broader social protection system, and the use of digital infrastructure to expand pension coverage among informal workers.