The federal government of Pakistan has introduced groundbreaking new pension reforms aimed at addressing the growing fiscal burden while ensuring a fairer and more sustainable system for government employees. These changes mark a significant shift in how retirement benefits will be calculated and distributed, signaling a new era in Pakistan’s pension policies.
Major Changes in Calculation Method
A key highlight of the reforms is the alteration in the pension calculation method. Previously, pensions were calculated based on the employee’s final salary. However, under the new system, the calculation will be based on the average salary of the last 24 months of service. This shift aims to create a more balanced and equitable pension structure, reflecting a broader view of an employee’s earnings over time.
Key Restrictions and Rules
- Single Pension Policy
The government has introduced a restriction that allows employees to receive only one pension. The practice of drawing multiple pensions has been abolished, ensuring greater fairness and reducing financial strain on the treasury. - Post-Retirement Employment
Retired employees who re-enter the workforce will now have to choose between their pension and the salary from their new job. Re-employment will result in the permanent forfeiture of pension benefits, promoting transparency and discouraging double-dipping.
Financial Impact and Future Implementation
The pension reforms are expected to save billions of rupees annually, easing the financial burden on the national treasury. Additionally, these reforms are aligned with broader fiscal policies to meet the country’s economic goals.
From July 2025, new government employees will be enrolled in a contributory pension scheme. This system will require employees to contribute 10% of their basic salary, while the government will contribute 20%, creating a shared responsibility model that ensures long-term sustainability.
Modernization of the Pension System
To streamline processes, the government has digitized pension records for over 300,000 employees. This includes automating pension increments and simplifying calculations to ensure accuracy and timely disbursement. These advancements are part of the government’s initiative to modernize public sector operations and eliminate inefficiencies.
A Step Toward Fiscal Sustainability
These reforms are a major step toward creating a more sustainable and equitable pension system in Pakistan. By addressing the rising pension liabilities and modernizing the system, the government aims to strike a balance between fiscal responsibility and the welfare of its retired employees. This landmark change is expected to pave the way for greater financial stability while maintaining a structured and transparent retirement benefit system.
