The Finance Ministry has introduced significant amendments to the existing pension scheme to address the rising pension costs.
Outlined in three office memoranda, these changes aim to alleviate the federal government’s financial burden while maintaining support for retired employees and their families.
Key amendments include:
- Family Pension Duration: The period for receiving a family pension after a retiree’s death has been set at 10 years.
- Special Family Pension Extension: The duration for Special Family Pension has been extended to 25 years.
- Lifetime Pension for Disabled Children: A new provision allows children of deceased retirees who are disabled to receive a lifetime pension.
Additionally, conditions for voluntary retirement have been revised:
- Minimum Service Requirement: Employees opting for early retirement must now have at least 25 years of service.
- Pension Reduction: Those retiring early will face a 3% reduction in their pension for each year they retire before the official retirement age, based on the remaining period until that age.
These amendments follow recommendations from the Pay and Pension Commission 2020 and are a response to the escalating financial strain on the federal pension system. Last year, pension payments totaled Rs821 billion, with this year’s bill exceeding Rs1 trillion and projected to reach Rs1.166 trillion next year. By 2026-27, pension expenditures are expected to rise to Rs1.341 trillion.
In response to this growing burden, the government also introduced a Contributory Pension Fund Scheme for newly recruited government employees, effective from July 1. This new scheme, which will also apply to civilian employees funded by the defense budget starting July 1, 2025, requires new employees to contribute 10% of their basic salary to the pension fund, while the federal government will contribute 20%.
