ISLAMABAD: Pension reforms aimed at reducing Pakistan’s growing pension bill, which has surpassed Rs1 trillion, will strengthen public finances, according to Khurram Shahzad, Advisor to the Finance Minister.
The reforms, introduced by the Pension Reform Commission 2020, will take effect on January 1, 2025, and are designed to reduce the financial burden and risks associated with pension liabilities.
The reforms apply equally to civilian and military personnel, ensuring fairness across the board. Secretary Finance Imdad Ullah Bosal played a key role in leading these reforms, which introduce significant changes to the existing pension system.
Among these changes is the discontinuation of multiple pensions for individuals, a move expected to reduce the financial strain on public resources.
The method for calculating pensions has also been revised. Pensions will now be determined based on the average salary of the last 24 months of service, instead of the last drawn salary.
This change will affect approximately 300,000 government employees. The reforms also reduce the first take-home pension and lower the base used to calculate future increases, leading to a notable reduction in the overall pension bill.
A new baseline pension system has been introduced, ensuring that pensions are fair and sustainable. This baseline pension, calculated at retirement, will be reviewed every three years by the Pay and Pension Commission to adjust for inflation and economic changes.
Additionally, the pension system will be digitized to improve accuracy, transparency, and reduce bureaucracy for over 300,000 government employees.
The reforms also include the establishment of a contributory pension fund for employees hired from July 1, 2024, to better manage future pension liabilities. The practice of annual compounding of pension benefits has been discontinued, and any increases will now be treated separately from the base pension.
By implementing these reforms, the government aims to create a sustainable pension system while ensuring equity and fairness for all. These measures are part of the government’s broader commitment to sound fiscal management and addressing the growing burden of pension liabilities, Shahzad added.
