The federal government of Pakistan has introduced pension reforms to reduce financial expenses. These changes follow a 15% increase in pensions for government employees announced in the Budget FY25.
Pension Reforms 2024 Notification
The Pension Reforms 2024 Notification outlines several revision to manage the increasing burden on the national budget. These changes include new rules for post-retirement allowances and future pension plans.
New Pension Rules:
- Federal employees will now get a pension based on 70% of their average salary from the last 24 months of service before retirement.
- Pensioners re-employed in public service after retiring at 60 can choose either a pension or a salary from the new job.
Family Pension Changes:
- Families of deceased pensioners will receive the ordinary family pension for up to 10 years.
- Special family pensions will be provided for 25 years if the first recipient becomes ineligible or dies.
- Disabled or special children of pensioners will get a lifelong special family pension.
Voluntary Retirement:
- Employees can opt for retirement after 25 years of service but will face a 3% reduction in the gross pension for each year before the age of 60, up to a 20% maximum reduction.
Introduction of a Pension Fund
The government plans to establish a Pension Fund to manage the pension system more efficiently. This fund will have specific rules for its operations and might include a Defined Contributory Scheme for new employees.
Financial Impact and Reforms
The federal government introduced 13 amendments to the pension scheme to relieve the financial burden on the national exchequer. These changes, part of the Budget 2024, aim to ensure a sustainable pension system.
Pension Calculation:
- Employees will receive a gross pension equivalent to 70% of their last two years’ salary before retirement.
- Voluntary retirement after 25 years is now possible, with deductions ranging from 3% to 20% until the age of 60.
Annual Pension Increase:
- Pensions will increase annually based on 80% of the average inflation rate over the previous two years, as reported by the State Bank of Pakistan (SBP).
Re-Employment Rules:
- Retired employees re-engaging in government jobs will receive either a pension or a salary.
- Both husband and wife, if government employees, will be eligible for pensions after retirement.
Future Steps and Recommendations
Economists and intellectuals suggest further reforms to address the strain on the pension system. Increasing the retirement age from 60 to 62-65 years is a proposal under consideration. This change could reduce the financial pressure on the economy and align Pakistan’s retirement age with global trends.
Contributory Pension Scheme:
- A Contributory Pension Scheme (CPS) is recommended for new government employees. This system, where both the employee and government contribute to a pension fund, is already in practice in other regions and countries.
Financial Literacy and Stability:
- Implementing financial literacy programs for employees and establishing a Pension Fund Management Authority are essential steps.
- Public-private partnerships can help bolster pension funds and ensure long-term financial stability.
These reforms aim to create a sustainable and efficient pension system in Pakistan, providing secure retirement benefits for government employees while managing the national budget effectively.