EOBI: An In-Depth Look at Its Role in Securing Retirement Benefits for Private Sector Workers in Pakistan

Insight into EOBI Pension Scheme:

The Employees' Old-Age Benefits Institution (EOBI) is Pakistan's federal social security program aimed at providing pensions and social safety nets for private-sector employees. Established under the EOBI Act of 1976 during the tenure of Prime Minister Zulfiqar Ali Bhutto, it was a groundbreaking initiative to address the challenges of retirement preparedness in a country where such considerations are often neglected.

Unfortunately, despite its potential, the EOBI system has failed to evolve in line with modern needs and market demands. As a result, its contributions toward ensuring reasonable retirement benefits for private-sector workers remain minimal, exacerbating poverty and societal challenges. Many retirees are forced to continue working well into old age, struggling to make ends meet.

In this blog by Pension Pakistan, we will critically examine the shortcomings of the EOBI system, explore the role of bureaucratic inefficiencies, and present actionable suggestions to transform it into a more effective and welfare-oriented institution.

Key Features of EOBI Pension Scheme

1. Coverage: It is mandatory for establishments with five or more employees. Covers workers aged 18-60 years earning a wage within prescribed limits.
2. Benefits Offered:

• Old-Age Pension: Paid monthly to individuals who reach the retirement age (currently 60 years for men and 55 for women) with at least 15 years of contributions.
• Survivors’ Pension: Paid to family members in case of the contributor's death.
• Invalidity Pension: For workers unable to work due to permanent disability.
• Old-Age Grant: A one-time lump sum for workers who retire but fail to meet the 15-year contribution requirement.

3. Funding Model: Contributions are made jointly by employers (5% of the minimum wage) and employees (1% of the minimum wage). Investments from EOBI funds generate additional revenue.

Social Benefits of EOBI

1. Poverty Alleviation: Provides a steady, though modest, income stream post-retirement, reducing vulnerability to poverty for older adults.
2. Social Security for Laborers: Acts as a safety net for low-income workers who typically have no other savings or retirement plans.
3. Support for Families: Survivors’ pensions provide financial relief to dependents in case of a worker’s demise.
4. Health and Disability Support: The invalidity pension ensures some financial stability for workers unable to continue their jobs due to accidents or health issues.

Challenges of EOBI: Insufficiency as a Substitute for Earnings

Despite its significance, EOBI pensions are inadequate for covering basic living expenses, leaving many pensioners in poverty. Key issues include:

1. Low Pension Amounts: The current minimum monthly pension is PKR 10,000, far below the living wage required for a decent life, especially in urban areas.
2. Limited Coverage: Only a fraction of Pakistan’s workforce is registered with EOBI. Informal sector workers, who comprise 72% of the labor force, are excluded.
3. Insufficient Contributions: Contributions are based on the minimum wage, leading to underfunding and limited payouts.
4. Inefficient Fund Management: Suboptimal investments and lack of transparency in fund utilization have reduced returns, impacting pension sustainability.
5. Inflation and Cost of Living: With inflation consistently rising, fixed pension amounts lose purchasing power over time.

Reforms to Enhance EOBI and Counter Poverty

To align EOBI pensions with market needs and address labor poverty, the following reforms are proposed:

1. Increase Pension Contributions and Payouts

• Dynamic Contribution Formula: Adjust contributions based on actual wages rather than the minimum wage.
• Incremental Payouts: Link pensions to inflation to maintain purchasing power.
• Government Subsidy: Provide additional government funding to enhance pension payouts, particularly for low-income workers.

2. Expand Coverage

• Include Informal Sector Workers: Introduce voluntary micro-pension schemes for informal workers, farmers, and self-employed individuals.
• Outreach Programs: Conduct awareness campaigns to educate workers about EOBI benefits and encourage registration.

3. Strengthen Fund Management

• Diversify Investments: Allocate EOBI funds to diversified portfolios, including government bonds, real estate, and sustainable infrastructure projects, to maximize returns.
• Professional Oversight: Engage independent financial experts to oversee fund management and ensure transparency.

4. Enhance Governance and Accountability

• Digitalization: Digitize EOBI processes to improve efficiency, reduce fraud, and ensure timely disbursements.
• Independent Audits: Conduct regular third-party audits of EOBI operations and fund usage.

5. Introduce Tiered Pension Plans

• Create a tiered structure where workers can opt for higher contribution rates to receive better pensions upon retirement.

6. Leverage Technology

• E-Governance: Implement an online registration and tracking system for workers, ensuring accessibility and transparency.
• Mobile Platforms: Use mobile payment systems for contributions and pension disbursements to expand reach.

7. Policy Integration and Collaboration

• Align with National Social Safety Programs: Integrate EOBI with initiatives like Ehsaas and BISP for coordinated poverty alleviation.
• Private-Public Partnerships: Engage private sector entities to co-develop pension schemes and fund management.

8. Encourage Savings Culture

• Develop educational campaigns emphasizing the importance of retirement savings.
• Provide tax incentives for voluntary contributions to EOBI or complementary private pension schemes.

Expected Outcomes of Reforms

1. Improved Living Standards: Higher pensions will allow laborers to meet basic needs and live with dignity in retirement.
2. Poverty Reduction: Expanded coverage and increased payouts will reduce poverty among laborers and their families.
3. Economic Stability: Enhanced pension funds will contribute to capital markets and economic growth.
4. Social Equity: Including informal workers ensures a more inclusive social safety net.

The EOBI pension scheme is a critical tool for social protection but requires urgent reforms to address its inadequacies.

By increasing contributions, expanding coverage, strengthening fund management, and leveraging technology, EOBI can become a robust safety net aligned with market needs.

These reforms are essential not only for laborers’ welfare but also for fostering socio-economic stability and reducing poverty in Pakistan.