The federal government has rolled out a new contributory pension fund scheme to tackle the country’s ballooning pension bill, which is projected to hit Rs10.55 trillion in FY2025–26.
According to the Finance Ministry, the reform replaces the traditional pension model for all federal employees recruited after July 1, 2024, aiming to make the system sustainable and reduce fiscal strain.
How it works
- Contributions: 22% of an employee’s salary will go into the fund (10% employee + 12% government).
- Management: A non-banking finance company (NBFC) under the Finance Ministry will manage the fund.
- Withdrawals: No withdrawals allowed before retirement; retirees can take 25% lump sum and receive the remaining 75% as monthly pension income.
Special cases
- Existing employees remain under the old pension system.
- Armed forces will shift to the new scheme starting July 1, 2025.
- Govt has allocated Rs10 billion to kickstart the fund.
Why this reform?
- Pension liabilities have become one of the biggest expenditure burdens, surging from Rs421 billion a decade ago to Rs10 trillion today.
- In FY2025–26 alone, pensions will cost Rs742 billion for the armed forces and Rs243 billion for civil servants.
- Officials say the new contributory model aligns Pakistan with international best practices and ensures long-term fiscal stability.
“This model strikes a fair balance between government support and employee responsibility while securing the financial future of retirees,” a Finance Ministry official stated.
