In a bid to meet conditions set by the International Monetary Fund (IMF), the World Bank, and other creditors, the federal government has introduced sweeping reforms to its pension system, including a ban on double pensions for employees. The changes aim to address the country’s growing pension liabilities, which have become a significant burden on the national budget.
Under the new rules, individuals eligible for more than one pension will now be required to choose a single pension. However, spouses will remain entitled to their partner’s pension in addition to their own, ensuring some financial security for families.
Pension calculations have also been revised. Instead of being based on the last drawn salary, pensions will now be calculated using the average salary of the last 24 months of service prior to retirement. This replaces the earlier formula, which considered salaries from the last 30 years.
The methodology for future pension increases has been overhauled. Increments will now be calculated as the gross pension minus the commuted portion at retirement. These increases will be maintained as separate amounts, with a comprehensive reassessment of the baseline pension every three years. Additionally, the annual compounding of pensions has been discontinued, and future increases will function more like ad-hoc salary adjustments.
For the current fiscal year, the government has allocated Rs. 1.014 trillion for pensions, with 66% of this amount earmarked for the Armed Forces. The reforms are part of a broader effort to manage escalating pension liabilities, which have grown in parallel with the country’s rising debt burden.
The Regulation Wing of the Ministry of Finance has issued notifications to implement these changes. The federal government has emphasized that these reforms are critical to ensuring fiscal sustainability and meeting the demands of international creditors. By addressing inefficiencies in the pension system, the government hopes to reduce financial strain while maintaining fairness for pensioners.
