Pakistan’s government has enacted significant pension reforms, fulfilling a key demand from the International Monetary Fund (IMF) as part of its bailout program. These reforms, effective January 1st, 2025, address concerns about fiscal sustainability and aim to save billions of rupees annually.

Key changes introduced by reforms include:

Elimination of Double Pensions: A complete ban has been imposed on government officials and employees receiving more than one pension. This directly tackles instances where individuals held multiple government positions and were entitled to multiple pensions upon retirement. This measure is expected to yield substantial cost savings.

Computerization of Pension System: The entire pension system for over 300,000 government employees has been computerized. This transition from manual processes to automated systems aims to improve efficiency, accuracy, and transparency in pension calculations and disbursement. This modernization is a significant step towards a more streamlined and less error-prone system.

Increments on primary pension only: The reforms introduce revised calculation methods for pensions. Annual pension increments will now only apply to the primary pension received by an employee. Future pensions will be calculated based on the employee’s salary during their last 24 months of service. This change affects the calculation of any subsequent pensions an individual might receive.

Regular Pension Review: The Pay and Pension Commission will now review and adjust the basic pension amount every three years. This ensures that pensions remain relevant to the cost of living and reflects changes in economic conditions.

Future Pension Contributions: A significant shift in policy is the announcement that new public sector employees hired from the next fiscal year (FY2026) will no longer be entitled to state-funded pensions upon retirement. Instead, they will contribute to private pension funds through mandatory deductions from their monthly salaries. This is a major departure from the previous system and aims to reduce the long-term financial burden on the government.

The implementation of these reforms was announced via a formal notification. The Ministry of Finance acted swiftly to implement the recommendations of the 2020 Pay and Pension Commission.

Finance Minister Muhammad Aurangzeb highlighted these changes, emphasizing their importance in stabilizing the national economy. The reforms are seen as a critical step in addressing Pakistan’s fiscal challenges and fulfilling its commitments to the IMF.