The Pakistan government has announced significant reductions in pension benefits for retired civil and armed forces personnel in a bid to address the country’s growing pension bill, which has already exceeded Rs 1 trillion. According to a report by The Express Tribune, the Ministry of Finance issued three separate notifications on Wednesday outlining the changes.
As part of the new measures, multiple pensions will no longer be allowed, and the first home take pension will be reduced. Additionally, the method used to calculate future pension increases will be changed. The new policy aims to reduce the pension burden, which, after debt servicing, defense, and development, is the fourth largest expenditure in Pakistan’s budget.
The Ministry of Finance’s notification states that, following the recommendations of the Pay and Pension Commission of 2020, individuals entitled to more than one pension will now only be allowed to draw one pension. This change will apply to both retired civil and military personnel. Furthermore, instead of receiving a pension based on their last drawn salary, pensioners will now receive a pension based on the average salary of their last two years of service.
The government also announced that the annual compounding of pensions will be discontinued. Any increases in pensions will now be treated separately from the base pension, similar to an ad-hoc salary increase, which is not added to the basic salary to avoid compounding.
The new pension rules will take effect from January 1 and will impact both retired civil and military personnel. Additionally, federal government employees who are currently receiving both a salary and a pension will also be affected by these changes. However, the changes will not apply to individuals who have already retired, except in cases where they are receiving multiple pensions.
For the current fiscal year, the government has allocated Rs 1.014 trillion for pension payments, with 66% of this amount, or Rs 662 billion, set aside for military pensions. This represents a 24% increase in the pension bill compared to the previous year, a cost that is becoming increasingly unsustainable.
The government expects that these changes will significantly reduce the pension bill over the next decade, making it more manageable. In addition to these changes, the government has already abolished the traditional pension scheme for new civilian employees hired from July 1, 2024. A similar system will be introduced for defense personnel starting July 1, 2025. Under the new system, employees will contribute to their pensions through salary deductions, instead of relying on the traditional pension scheme.
