ISLAMABAD, June 7, 2025 – The federal government is actively reviewing proposals to increase salary and pension for government employees in the upcoming Budget 2025–26, despite tight fiscal space and growing pressure from coalition partners.
According to credible media sources, while a nominal increase in salary and pension is currently under consideration, demands from political allies, especially the Pakistan Peoples Party (PPP), are pushing for a more substantial raise. The PPP has formally proposed up to a 10% increase in salary and pension, either at the time of budget presentation or during its passage through the National Assembly. This proposal has also been communicated to the International Monetary Fund (IMF) for consultation, as Pakistan continues discussions under its extended financial support program.
Special attention is being given to the armed forces in terms of salary and pension adjustments. One of the key ideas under discussion is converting the existing Risk Allowance into a Pensionable Allowance. However, no final decision has been made on whether to include the armed forces under the Defined Contributory Pension (DCP) scheme, which is expected to be enforced from July 1, 2025.
The DCP scheme has already been introduced for new civilian employees during the current fiscal year. The government now aims to expand pension reforms in Budget 2025–26, potentially adding more structured and long-term sustainability measures to control the growing pension bill.
In addition, a proposal to provide a 30% Disparity Reduction Allowance for employees in basic pay scales (BS-1 to BS-16) is also under active evaluation. Furthermore, two previously excluded ad-hoc allowances are being reviewed for possible merger into the basic pay, a move that could benefit lower- and mid-level employees.
The Ministry of Finance is finalizing a range of options and preparing detailed fiscal impact assessments of the proposed salary and pension adjustments. These proposals will be presented to the federal cabinet, led by Prime Minister Shehbaz Sharif, on June 10, 2025, for final approval before the budget announcement.
While the government is treading cautiously due to ongoing financial constraints, the planned increases in salary and pension are aimed at providing relief amid modest inflationary declines during the outgoing fiscal year.