The government has approved a 10% salary increase for federal employees (Grade-1 to Grade-22) and a 7% pension hike for retired government servants under the federal budget for fiscal year 2025-26. The raise was introduced after Prime Minister Shehbaz Sharif intervened during a cabinet meeting, rejecting a proposed 6% increase and insisting on the higher 10% raise.
In addition to salary and pension increases, the government has also introduced pension reforms aimed at reducing the financial burden on the exchequer.Â
The reforms include the elimination of multiple allowances, limiting the family pension period to 10 years after the death of a beneficiary, and linking pension increases to the Consumer Price Index (CPI).Â
The government also proposed imposing a 5% tax on pensions exceeding Rs10 million annually for pensioners below the age of 70, with no tax on low- to medium-income pensioners.
While the federal budget includes various provisions for government employees, it notably lacked a specified increase in the minimum wage, which remains at Rs37,000. Additionally, differently-abled employees will receive a higher monthly conveyance allowance of Rs6,000, an increase of Rs2,000 from the previous amount.
Prime Minister Sharif, addressing the cabinet meeting, emphasised the sacrifices made by the salaried class and the common man during difficult economic times. He questioned the contributions of the wealthy in comparison to the salaried individuals, who have contributed Rs400 billion in taxes.Â
The Prime Minister stressed that despite the financial challenges, the country’s key economic indicators have shown improvement, and Pakistan is now on a path to economic recovery.
The government also proposed a 30% disparity reduction allowance for eligible employees to eliminate salary differences. A special relief allowance has been suggested for armed forces personnel in recognition of their services to national defense, with the expenses covered under the defense budget for the year.
