Pakistan’s government has introduced significant pension reforms, aligning with the demands of international creditors like the International Monetary Fund (IMF) and the World Bank. These reforms, effective from January 1, 2025, aim to address the country’s fiscal challenges, enhance transparency, and ensure sustainability in public finances.
Key Highlights of the Pension Reforms
Elimination of Double Pensions
The government has banned double pensions for retired employees. Individuals eligible for more than one pension must now opt for a single pension. However, spouses will remain entitled to their partner’s pension in addition to their own.Revised Pension Calculation
Pensions will now be calculated based on the average emoluments drawn during the last 24 months of service, replacing the previous method of calculating based on the last 30 years of service. This adjustment ensures more accurate and manageable pension amounts.Increment Revisions
Annual increments will now apply only to the primary pension, with the gross pension minus the commuted portion serving as the baseline for future increases. These increments will be maintained separately until a comprehensive review is conducted every three years by the Pay and Pension Commission.
Modernized Pension System
The pension records of over 300,000 employees have been digitized, replacing manual processes with automated systems. This computerization ensures accuracy, transparency, and efficiency in pension disbursements.Mandatory Pension Contributions for New Employees
Starting FY2026, newly hired public sector employees will no longer receive state-funded pensions. Instead, they will contribute to private pension funds through monthly salary deductions, reducing the government’s financial burden in the long term.Pension Reviews and Sustainability
The Pay and Pension Commission will review basic pension amounts every three years to ensure alignment with inflation and economic conditions. This periodic reassessment helps maintain relevance and fairness in pension allocations.
Financial Impact and Economic Stability
The reforms are projected to save billions annually, significantly reducing Pakistan’s escalating pension liabilities, currently estimated at Rs. 40 to 45 trillion. A notable 66% of the allocated Rs. 1.014 trillion pension budget for FY2024 will go to the Armed Forces, underscoring the urgency of these changes.
Finance Minister Muhammad Aurangzeb emphasized the importance of these measures in stabilizing Pakistan’s economy. He also announced the launch of the “Uraan Pakistan” economic initiative to further boost national growth and financial sustainability.
- Where an in-service federal government employee becomes entitled to a pension, such employee will not be eligible to receive such pension.
- The in-service/ pensioner spouse will be eligible for pension of his/ her spouse in addition to his/ her own pay/ pension.
- According to another notification for calculation of emoluments for the purpose of pension, it has been decided that pension will be calculated on the basis of average of pensionable emoluments drawn during last 24 months of service prior to retirement.
- According to yet another notification, it has been decided that future increase methodology in pension will be as under
- The net pension [Gross Pension less Commuted portion of Pension] calculated at the time of retirement will be termed as baseline pension. Any increase in pension will be granted on baseline pension.
- Each increase will be maintained as a separate amount until the time the federal government decides to review and authorise any additional pensionary benefits.
- Baseline pension will be reviewed by Pay and Pension Committee after every three years. The current pension of existing pensioners will now be considered as baseline pension. The baseline pension is deemed to include restored commuted portion of pension as and when restored.
