The government of Pakistan has reduced pension benefits for retired civil and armed forces personnel in an effort to address swelling annual pension liabilities, which have already surpassed PKR 1 trillion.
On Wednesday, January 1, the country’s Finance Ministry implemented changes based on recommendations from the Pay and Pension Commission-2020 (PPC), as reported by DAWN , Pakistan’s English daily.
Key changes include the discontinuation of multiple pensions, reductions in the pension for the first home take and adjustments to the base for determining future pension increases, according to The Express Tribune.
These reforms were initially proposed in the 2024-25 federal budget and received approval from the Economic Coordination Committee (ECC) of the Cabinet in June 2024. Though intended to take effect on July 1, 2024, the first day of Pakistan’s fiscal year, the official notification was delayed by six months.
The changes will not apply to individuals who have already retired, except where multiple pensions are being paid, according to The Economic Times .
Under the new rules, pension calculations for future retirees will be based on the average salary of their last two years of service, rather than the final salary drawn. Additionally, retired individuals will be restricted from receiving more than one pension, even if they are eligible for multiple ones. Employees eligible for multiple pensions will be required to select one.
Furthermore, spouses of in-service employees or pensioners will now be entitled to receive their spouse’s pension, in addition to their own, as per DAWN.
The government has also made adjustments to how future pension increases will be calculated. A new concept of “baseline pension” has been introduced, which refers to the net pension calculated at the time of retirement, excluding any commuted portion.
According to Profit, an economic magazine published by Pakistan Today, annual pension increases will be applied to the baseline pension. Each increase will be maintained as a separate amount until the federal government authorizes additional pensionary benefits. The Pay and Pension Commission will review baseline pensions every three years to ensure adjustments reflect economic conditions.
For existing pensioners, the current pension, as of January 1, 2025, will serve as the baseline, including any restored commuted portion.
In addition to these changes, the government has already phased out the traditional pension scheme for civilian employees hired after July 1, 2024. Starting July 1, 2025, these changes will also apply to defense personnel. New employees will be covered under a contributory pension scheme.
For the current fiscal year, the government has allocated PKR 1.014 trillion in the budget for pensions, with PKR 662 billion (66%) earmarked for military pensions. This represents a 24% increase in the pension bill compared to the previous year, as reported by DAWN.
The Ministry has also proposed penalties for voluntary retirement.
“A federal government employee may opt for retirement after completing 25 years of service; however, the employee will face a flat reduction rate of 3% per year in gross pension based on the number of months from the date of retirement to the date of superannuation,” reported DAWN, citing draft rules.
The flat reduction in gross pension will be capped at 20%. However, this penalty would apply only in cases of voluntary retirement from the armed forces and civil armed forces, and only if retirement occurs before the prescribed rank service, the report notes.
