Can Pakistan manage pension reforms with discipline rather than delay?

Pakistan’s budget documents rarely make for gripping reading, but one number stands out in stark relief: more than one trillion rupees will be spent on pensions this year. A decade ago, the figure was a fraction of that. Today, pensions are on course to become one of the largest drains on the federal purse, rivaling even development spending. The promise of lifelong benefits to every civil servant and soldier who retires has swelled into a fiscal liability too heavy to sustain.

This summer, under pressure from international lenders and confronted by its own arithmetic, the government has begun to rewrite the rules. The newly notified Federal Government Defined Contribution Pension Fund Scheme will replace the traditional system for fresh entrants. Instead of an open-ended commitment by the state, pensions will now be tied to actual contributions from both employee and employer. New civil servants will put aside ten percent of their pensionable pay, matched by a twelve percent contribution from the exchequer. Over time, their retirement security will depend not on unfunded promises but on the balance that accrues in their pension accounts.

For existing employees, nothing changes. Their defined benefits remain intact. The reform is prospective only, designed to slow the growth of future liabilities. In reality, this is less a solution than a damage-control strategy. Pension bills have been rising at nearly thirty percent over two years, and much of this is driven by the armed forces. Military pensions alone are projected to reach 742 billion rupees in 2025–26, up by almost one third from just two years ago. Civilian pensions, though smaller, add another 243 billion rupees to the tally.