Despite ticking pension bomb, govt increases annuity for federal employees by 17.5% 

Development of a pension fund with Rs10bn in plans

Probably one of the biggest ticking bombs on the expenditure side of Pakistan’s federal budget is Pensions. While little to no heed is paid to this problem, the bill keeps on ballooning year in year out. Over the last 12 years, Pakistan’s pension budget allocation has gone up by 500% exclusive of provincial pensions. 

In the budget announced for the upcoming financial year, the government has allocated Rs. 761 billion in pensions for federal employees. This includes military and civil pensions and an additional 10 billion for a proposed pension fund. The total pension expenditure that is estimated this year, is a whopping 25% more than the previous year. 

With the newly announced budget, the government has announced a 17.5% flat increment in the pensions of all government officers from grade 1 to 22. The increase has already been accounted for in the current allocation.

It is important to note here that the military pensions in this bill constitute up to 74% of the total pension budget. The military pensions amount up to Rs. 563 billion whereas the civil pensions make up Rs. 188 billion out of the total. 10 billion has been allocated for a pension fund.

Last year, Pakistan allocated Rs. 609 billion in pensions which was supposed to incorporate a 13% increase in pensions. However during the financial year, no increment was put in place due to a tight fiscal schedule. But why does the government want to set up a pension fund?

To answer this question we go back to 2009, when the government, for the first time included future retirees in the receivers of the increment awarded in 2009. In the following years, the same act was repeated more than 6 times. The step compounded increments for retirees, leaving service after 2020 for up to 6 times. This caused the pension figures to balloon to the levels that they are currently at. Even if the government does not make future retirees a party to the current increment, the increments in the past can not be undone. 

Pakistan follows a version of the defined benefits in pensions that demands the disbursement directly through the revenue account. As opposed to this much of the developed world works on either a defined contribution model or a funded defined benefit. The latter is the method that Ishaq Dar is aiming for to avoid a trainwreck in the future. Will the PDM government be able to achieve that is a tough question, especially where nobody in Pakistan, including the finance ministry can even think of any sort of primary surplus.

With the current pension bill at 6% of the total revenue and 8% of the tax revenue, the government needs an investment much more sizable than 10 billion to make any dent in the pensions bill.

On top of that, despite tall claims of providing relief to the poor and rounding up the rich, the government has failed to do so with its own employees. With a flat 17.5% increment, the pension for 17-22 grade officers would increase at a much higher rate. Not to mention the compounded effect of these increments takes the pensions of some of the retired officers to an obscenely high level.

By factoring out the 17.5% increase in pension no s, the government is estimating for a mere 6% increase in its budget expense, that too at a higher value with an increased pool of retired officers. For context, the yearly average in the past 4 years for this number is close to 15%. Not only does this put the allocation of an additional 10 billion in threat, it also shows that the current estimation for the pension budget has been done with careless optimism.

- Advertisement -
Shahnawaz Ali
Shahnawaz Ali
The author is a Business and Finance journalist at Profit and can be reached via email at sha[email protected] and via twitter @shahnawaz_ali1


  1. Mr Ali. Dejected to see your views with regard to PENSION. Have you a salaried person in your family. A man who served the country for his whole life has any right to keep alive after his retirement. Before taking down please see the people in your surrounding.

  2. I agree with maximum points that author mentioned in his articles.Govt should take decesion to stop increase in pension of retire officers those who get pension more than 2lak.And should make slabs for different scales.for example from grade 1-5, 6-11,12-16, 17-19, 20-22.According to their scale pension and salaries should be increased.Max pension and salaries should be increased from Grade 1-5.and minimum salary should be increased 20-22 grade.silmilarly pensioners who get more than 2lac/month pension.there should be no any increase in their pension evey year.and those who get 10k-20k max percentage should be given to them.but unfortunately in Pakistan those who finalized the budget are all higher level officers(20-22 grade) they don’t want county ‘s prosperity they want only their own interest so we see every year that there is no any big difference of percentage between low salaried or low pensioers employees and high salaried or high pensioners employees??
    Govt must creat limit of max value of pension and that should not be more then
    2-3 lak/month.but we see supreme courts retire judges are getting 12-15lak/month pension and interesting thing is that no tax is applied on their pensions???so govt must apply taxes on pensioners who are getting pension more then 1lac/month.and create limit of max value of pension not more then 2-3 lac/month even for retire chief justice or retire services chief of any force???

  3. Being a private sector employee you do not realize the woes of retired persons. If your organization has a pension system, you will realize the importance of pension when you have retired. There are areas where the government can slash its expenditure to a large extent but you or anyone else dare not question that. Since pensioners are a silent minority with no voice of their own nor do they the street power or a gun in their hands, everybody starts being critical towards pension expenditure. Has there been enough space I would have written a full article justifying expenditure on pensions etc.


Please enter your comment!
Please enter your name here

- Advertisement -

Must Read

WB launches ‘Reforms for a Brighter Future’: Time to decide to...

PESHAWAR: The World Bank has launched a new program to foster debate on the critical development policy issues facing Pakistan. ‘Reforms for a Brighter...