ISLAMABAD: The Ministry of Finance, following the recommendations of the Pay and Pension Commission 2020, has introduced significant amendments to the federal pension scheme in a bid to manage rising pension expenditures and ease the financial burden on the government.
Outlined in three separate office memoranda, the changes include limiting the family pension to a maximum of 10 years after the death of a retired employee. In addition, the duration for receiving a Special Family Pension has been extended to 25 years. A key reform grants the entitled child of a deceased employee lifetime pension benefits if the child has a disability.
The amendments also tighten rules for voluntary retirement. Employees opting for early retirement after 25 years of service will now face a 3% reduction in their pension for each year before reaching the official retirement age. This reduction will apply to the remaining years until standard retirement.
These reforms come in response to the government’s surging pension costs, which have skyrocketed from Rs821 billion last year to over Rs1 trillion this year, with projections reaching Rs1.341 trillion by 2026-27, according to the Finance Ministry.
Additionally, the government has rolled out the Contributory Pension Fund Scheme for new recruits, effective from July 1. Under the new structure, newly hired civil servants will contribute 10% of their basic salary to the fund, while the federal government will match this with a 20% contribution. Civil servants whose salaries are paid through the defense budget will enter the scheme on July 1, 2025.
These reforms mark a crucial step in controlling the spiraling pension costs that threaten to overwhelm the federal budget in the coming years.
