New pension reforms aim to reduce the public finance burden

January 05, 2024 (MLN): The Pension Reform Commission 2020 has introduced pension reforms to reduce the huge cost and risks of pension liability on public finances.

Secretary Finance Imdad Ullah Bosal has been instrumental in leading the reforms, said advisor to the Finance Minister, Khurram Schehzad, in a series of Tweets.

Changes apply to both civilian and military personnel ensuring equality and fairness across the board.

The key initiatives and impacts include:

Individuals will no longer be eligible to receive multiple pensions, reducing the overall financial burden.

Pensions will now be calculated based on the average salary of the last 24 months of service, rather than the last drawn salary, impacting approximately 300,000 government employees.

The first take-home pension has been reduced, and the base for determining future increases has been lowered, resulting in a significant decrease in the pension bill.

A baseline pension system has been introduced, where the net pension calculated at the time of retirement will be termed as the baseline pension. 

This system will ensure that pensioners receive a fair and sustainable pension.

The baseline pension will be reviewed every 3 years by the Pay & Pension Commission to protect pensioners from inflation & changing economic conditions.

The pension system will be digitized for over 300,000 government employees, improving accuracy, transparency, and reducing red tape and corruption.

A contributory pension fund has been announced for employees hired from July 1, 2025, to manage the liability in the future.

The annual compounding of pension benefits has ended; any increase will be treated separately from the base pension. 

These reforms aim to reduce the pension bill (crossed Rs1 trillion), The changes will take effect from January 1, 2025.

By applying these reforms equally to both civilian and military personnel, the govt ensures fairness, equity, and a more sustainable pension system for all.

The Finance Secretary played a vital role in driving these reforms, which will have a lasting impact on Pakistan's public finance landscape. 

The govt's efforts to address the growing pension liability demonstrate its commitment to prudent fiscal management and ensuring the long-term sustainability of the pension system.

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