Pakistan Pension Reforms 2025: Cost Reduction and Streamlined Benefits
- Abeera Marium Siddiqui
- January 2, 2025
- 4:00 pm
- 56
- Current Affairs
The Pakistan government has introduced significant pension reforms in 2025 aimed at reducing costs and streamlining benefits for retired employees. These reforms, officially notified by the Ministry of Finance, mark a major shift in the country’s pension policy, impacting future and current retirees alike.
Key Highlights of the Pension Reforms
- Pension Calculation Based on Average Salary
Under the new rules, pensions will now be calculated based on the average salary of the last 24 months of service, replacing the previous system that calculated pensions on the last drawn salary. This change aligns with recommendations from the Pay and Pension Commission (PPC-2020).
- Restriction on Multiple Pensions
Retired individuals will no longer be entitled to draw multiple pensions. In cases where a federal employee is eligible for more than one pension, they must choose one. However, an in-service spouse can still claim the pension of their partner alongside their own.
- Elimination of Dual Salary and Pension
Employees rejoining any organization post-retirement will forfeit their pensions permanently, ensuring that only one source of income is retained.
- Baseline Pension and Increment Policy
The reforms establish a "baseline pension" for current retirees, calculated as the gross pension minus the commuted portion. Any future increases will be calculated on this baseline pension, with periodic reviews conducted every three years.
- Penalties for Voluntary Retirement
Employees opting for early retirement after completing 25 years of service will face a reduction of 3% per year in their gross pension, capped at a maximum of 20%. This penalty, however, will specifically apply to armed forces and civil armed forces personnel who retire before meeting prescribed rank service.
- Introduction of a Contributory Pension Scheme
A contributory pension scheme for new employees was implemented on July 1, 2024, for civilians and will extend to armed forces personnel by July 2025. The government has allocated Rs10 billion to a dedicated pension fund to support this transition.
Context and Impact
The government’s decision to revamp the pension system comes amid mounting fiscal pressure. The annual pension bill had been escalating rapidly, necessitating urgent measures to ensure sustainability. These reforms, presented in the federal budget for 2024-25 and approved by the Economic Coordination Committee, aim to address long-term pension liabilities without compromising the core philosophy of supporting retirees.
The International Monetary Fund (IMF) has also been briefed on these changes, reflecting the alignment of the reforms with broader economic stabilization goals.
Budget 2024-25 Updates
Earlier, the government announced a 15% increase in pensions for federal employees and raised the adhoc relief allowance for government workers. Grade-16 employees saw a 25% increase, while those in grades 17-22 received a 20% increase.
Conclusion
The pension reforms 2025, introduced as part of the federal budget 2024-25, have been formally notified by the Ministry of Finance and are effective immediately. These reforms are expected to curb pension-related expenses while aligning with the recommendations of the Pay and Pension Commission.
