The government has implemented significant cuts to pension benefits for retired civil and military personnel in an effort to manage the growing pension burden, which has already exceeded Rs1 trillion, making it the fourth-largest expense in the national budget.
On Wednesday, the Ministry of Finance issued three separate notifications that will reduce pension payouts. The changes will eliminate multiple pensions for individuals and adjust the base for future pension increases. These new rules will not apply to individuals already retired, except in cases where multiple pensions are received.
The new regulations will also end the annual compounding of pensions, with any increases now treated separately from the base pension—similar to how salary increases are handled. Instead of being based on the last salary drawn, pensions will be calculated using the average salary from the final two years of service.
Furthermore, from January 1, individuals receiving both civilian and military pensions will no longer be allowed to collect more than one pension. The new rules will also apply to current federal government employees who receive both a salary and pension.
The changes were made following recommendations from a commission established by former Prime Minister Imran Khan in 2020. The government has allocated Rs1.014 trillion for pensions in the current fiscal year, with military pensions accounting for 66% of this amount. The pension bill has seen a 24% increase compared to last year, making it unsustainable without changes.
The aim of these adjustments is to reduce the pension bill over the next decade, bringing it under control. Pension payments are now the fourth-largest expenditure in the budget, and they could become the third-largest if further cuts are made to the development budget.
One key change is that individuals entitled to multiple pensions will now only be allowed to choose one. Additionally, the pensions of in-service government employees will not be paid until retirement.
A second notification outlines that pensions will now be calculated based on the average of the last 24 months of service, rather than the last salary drawn. This adjustment applies to those retiring after January 1.
A third notification details how pension increases will be managed. Any increase will be based on the “baseline pension,” which excludes any commuted pension portion. The baseline pension will be reviewed every three years by the Pay and Pension Committee, but any increase will remain separate from the base pension until further government approval is given.
These pension reforms aim to stabilize the pension system and make it more manageable in the long term, though they will result in significant cuts to pension payouts.
