Pakistan has introduced a comprehensive set of pension reforms aimed at reducing the growing burden of pension liabilities on public finances. These reforms, announced by Adviser to the Finance Minister Khurram Schehzad via a post on X (formerly Twitter) on Saturday, are set to take effect from January 1, 2025. The initiative seeks to ensure fairness, sustainability, and financial stability within the nation’s pension system.
The reforms address both civilian and military personnel, promoting equity across the board. A major highlight is the discontinuation of multiple pensions, a move that prevents individuals from receiving multiple benefits and significantly alleviates the government’s financial burden. Schehzad credited Secretary of Finance Imdad Ullah Bosal for his pivotal role in driving these changes.
One of the core adjustments involves revising the pension calculation method. Pensions will now be calculated based on the average salary of the last 24 months of service rather than the last drawn salary. This measure, expected to affect approximately 300,000 government employees, is anticipated to reduce the overall pension bill substantially.
In addition, the first take-home pension for retirees has been lowered, and the base for future increases has been recalibrated to further reduce costs. A new baseline pension system has been introduced, where the net pension calculated at retirement will serve as the baseline. This baseline will undergo periodic reviews every three years by the Pay & Pension Commission to account for inflation and economic changes.
To enhance efficiency and transparency, the government is rolling out a digital pension system for over 300,000 government employees. This digital initiative is designed to minimize bureaucracy, improve accuracy, and curb corruption within the pension disbursement process.
Further, a contributory pension fund has been established for employees hired from July 1, 2025. This fund aims to manage future pension liabilities effectively. The practice of annual compounding of pension benefits has been eliminated, with any future increases to be addressed separately from the baseline pension.
The pension bill, which has surged past Rs1 trillion, poses a significant challenge to Pakistan’s public finances. These reforms represent a critical step toward controlling costs while safeguarding the welfare of pensioners. The government’s commitment to prudent public finance management is evident in these measures, which are expected to reshape the country’s pension system for the long term.