By Qudsia Bano

Pakistan can mobilise long-term domestic financing for infrastructure, energy and private-sector growth by drawing lessons from Japan's pension investment model, which channels retirement savings into diversified long-term assets under strong institutional governance.

The opportunity has gained significance following a series of pension and capital market reforms introduced in Pakistan during April and May 2026. These include expanding funded pension schemes, launching new investment products, and implementing initiatives to boost long-term domestic savings.

In April 2026, the Securities and Exchange Commission of Pakistan (SECP) approved eight additional pension funds for Balochistan and one for Punjab, increasing the number of authorised pension funds to 15 in Balochistan and 25 in Punjab. The move advances the transition from defined-benefit pension systems to defined-contribution arrangements. JS Investments, Alfalah Asset Management, NBP Fund Management, UBL Fund Managers and AWT Investments were among the asset managers involved.

Later the same month, the SECP approved a roadmap, allowing asset management companies to offer exchange-traded funds (ETFs) directly and proposed including low-cost index-tracking funds and ETFs in the Voluntary Pension System. The initiative is expected to broaden investment options for retirement savers while expanding the pool of long-term domestic capital available for productive investment.

Despite these reforms, Pakistan's funded pension sector remains relatively small. According to the Pakistan Economic Survey 2025-26, voluntary pension assets stood at Rs138 billion by March 2026, compared with Rs5.64 trillion in the mutual fund industry. Real Estate Investment Trust (REIT) schemes held Rs173 billion, while outstanding debt securities amounted to Rs133.6 billion, indicating that long-term institutional savings have yet to play a major role in financing national development.

Another milestone came in May 2026, when Pakistan's leading capital market institutions launched the Capital Market Development Fund. Rehma Tariq, Programme Manager at the Institute of Financial Markets of Pakistan, described the initiative as a ring-fenced mechanism for long-term capital market development. It was initially capitalised with Rs120 million and will receive annual contributions equal to one percent of participating institutions' revenues.

Sarwat Shah, Business Development Executive at JS Investments, has similarly emphasised that long-term savings should be invested to build wealth and deepen capital markets rather than remaining concentrated in short-term instruments.

Pakistan has also taken steps to broaden development financing. In May 2026, the Planning Commission introduced its Blended Finance Framework, identifying green bonds and sukuk, public-private partnerships, guarantees, carbon markets and debt-for-nature swaps as key instruments for mobilising private investment. The framework identifies green bonds and sukuk as suitable financing vehicles for renewable energy, electricity transmission, water infrastructure and sustainable transport projects.

According to the Planning Commission, Public Sector Development Programme (PSDP) utilisation reached Rs469.8 billion during July-April FY2025-26, representing 56.1% of the annual allocation. Approved projects during the period were expected to generate 3,197 direct and 7,956 indirect jobs. By comparison, voluntary pension assets were equivalent to nearly 29% of PSDP utilisation, illustrating the potential contribution that retirement savings could make to long-term development financing as pension assets continue to expand.

Japan's experience offers a useful reference for Pakistan's ongoing reforms. The Government Pension Investment Fund (GPIF), one of the world's largest pension funds, follows a diversified long-term investment strategy. The Bank of Japan's April 2026 Financial System Report noted that public pension portfolios were being rebalanced in line with long-term strategic asset allocations designed to ensure safe and efficient management.

Rather than mandating pension fund allocation to government projects, Japan highlights the value of independent fund management focused on diversified domestic assets, robust governance, and prudent risk controls. By adopting the approach, Pakistan can deploy retirement savings into infrastructure bonds, green sukuk and well-structured public-private partnerships. This strategy could help strengthen capital markets while supporting national development priorities and safeguarding retirement savings.

Credit: INP-WealthPk