The federal government has recently announced the introduction of a contributory pension fund scheme for all new employees in both the civil government and armed forces of Pakistan. This new scheme will apply to those who have been appointed on a regular basis, starting from July 1, 2024, or later. Under this system, employees will be required to contribute towards their pension fund, marking a significant shift from the traditional pension model.
According to the finance ministry, under the newly introduced contributory pension fund scheme, federal government employees will contribute 10% of their basic pay towards their pension. Meanwhile, the government will contribute 20%, making it a combined effort to secure employees’ financial futures post-retirement.
As per the notification, “This contributory pension fund scheme shall also be applicable to the armed forces who are appointed on a regular basis on or after July 1, 2025.” It should be noted that the federal government has also set aside Rs10 billion in the 2024-25 budget to kickstart the newly introduced pension fund.
The federal government’s total expenditure on pensions has surged to an estimated Rs1.014 trillion for the current fiscal year, a significant rise from Rs821 billion in FY24. This increase is largely driven by pension liabilities for the armed forces, which have grown by about 18%, from Rs563 billion to Rs662 billion. In contrast, the pension expenditure for civilian employees has been budgeted at Rs220 billion, showing a slight decrease of 3.5% from last year’s Rs228 billion.
One of the primary factors contributing to the hike in the overall pension budget is the Rs122 billion allocation for the 15% increase in pensions, effective from July 1, 2024. This substantial adjustment reflects the government’s efforts to keep up with rising living costs and provide enhanced financial support to retirees. However, the significant increase in pension liabilities underscores the urgent need for reforms like the contributory pension scheme to alleviate the growing fiscal burden.
However, it is pertinent to mention here that this contributory pension fund scheme is not applicable to the existing employees of the federal government and the armed forces of Pakistan.
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