Pakistan reduces pension benefits of retired civil, armed forces personnel

Pakistan Finance Minister Muhammad Aurangzeb. File
| Photo Credit: Reuters

The Pakistan government has drastically reduced pension benefits of retired civil and armed forces personnel to reduce a growing pension bill which has already swelled over Rs 1 trillion, according to a media report.

The Ministry of Finance on Wednesday (January 1, 2025) issued three separate notifications to discontinue multiple pensions, reducing both the first home-take pension and also lowering the base for determining future increases in pensions, The Express Tribune newspaper reported.

After debt servicing, defence and development, the pension is the fourth largest expenditure in the budget, the paper said.

According to the Ministry of Finance’s notification, on the recommendations of the Pay and Pension Commission of 2020, “it has been decided that henceforth, in an event where a person becomes entitled to more than one pension, such person shall only be authorised to opt to draw one of the pensions”.

Instead of taking a pension on the basis of the last drawn salary, the new pensioner will get a pension based on the average salary of the last two years.

The Finance Ministry stated that all the existing instructions on multiple pensions should stand amended with immediate effect.

The changes will not be applicable to people who have already retired, except in cases where multiple pensions are paid.

It also ended the annual compounding of the pension and any increase would be treated separately from the base pension, a concept that is similar to the ad-hoc salary increase that is not made part of the basic salary to avoid compounding.

The changes will take effect from January 1 and will be applicable to both retired civil and military personnel. Many serving federal government employees, who are taking salary and pension, would also be affected by the changes.

The finance ministry’s notifications stated that the changes in the pension rules have been made on the basis of recommendations given by a commission constituted by the government of former prime minister Imran Khan in 2020.

For the current fiscal year, the government has allocated Rs 1.014 trillion in the budget for paying pensions and its lion’s share, as 66 per cent or Rs 662 billion has been allocated for military pensions. There is an increase of 24% in the pension bill compared to the last year, which is funded from the budget and is not sustainable.

After these changes, it is expected that in the next decade, the pension bill will significantly reduce and will become manageable.

Apart from the new changes made in the pension system, the government already abolished the traditional pension scheme for the civilian employees hired from July 1, 2024. The scheme will also be applicable to employees of defence forces from July 1, 2025.

Instead, the new employees have been provided with a system of contributory pension based on the contribution made by them through salary.