Govt introduces pension reforms to tackle public finance burden, says aide to FM

KARACHI: Pakistan has unveiled a comprehensive set of pension reforms aimed at reducing the growing burden of pension liabilities on public finances.

The reform package, shared by Adviser to the Finance Minister Khurram Schehzad in a post on X (formerly Twitter) on Saturday, will take effect from January 1, 2025, and is designed to ensure fairness, sustainability and financial stability within the country’s pension system.

The reforms address both civilian and military personnel, promoting equity across the board. Among the key measures introduced is the discontinuation of multiple pensions, preventing individuals from receiving multiple pensions, which will significantly reduce the financial load on the government. The adviser to the finance minister added that Secretary of Finance Imdad Ullah Bosal played a vital role in driving these reforms.

The post mentioned that one of the core changes involves the revision of the pension calculation method. Instead of basing pensions on the last drawn salary, pensions will now be calculated based on the average salary of the last 24 months of service. This change is expected to impact approximately 300,000 government employees, lowering the overall pension bill.

The first take-home pension for retirees has also been reduced, and the base for future increases will be lower, contributing to a notable decrease in the pension costs. Besides this, a new baseline pension system has been introduced, under which the net pension calculated at retirement will serve as the baseline, Schehzad added.

This baseline pension will be periodically reviewed every three years by the Pay & Pension Commission to account for inflation and changing economic conditions.

To improve the efficiency and transparency of the system, the government is also introducing a digital pension system for over 300,000 government employees. The digitisation aims to reduce red tape, enhance accuracy and limit corruption.

Further ensuring the sustainability of pensions, a contributory pension fund has been established for employees hired from July 1, 2025. This fund will manage future pension liabilities, while the annual compounding of pension benefits has been eliminated, with future increases to be treated separately from the baseline pension.

The pension bill, which has exceeded Rs1 trillion, is a major concern for the country’s public finances, and these reforms aim to rein in costs while safeguarding the welfare of pensioners. The government’s commitment to managing public finance prudently is evident in these measures, which are set to reshape the country’s pension system for the long term.