The government has introduced significant changes to the pension system, implementing new rules and restrictions, according to Express News. A notification issued on Wednesday outlined key adjustments to the way pensions will be calculated and managed moving forward.
Pension calculation based on average salary of last 24 months
As per the notification, pensions will now be calculated based on the average salary of an employee’s last 24 months, rather than their final salary. Additionally, employees will no longer be permitted to receive more than one pension. However, these new rules will not apply to those opting for voluntary retirement.
Salary increments in final year excluded from calculations
The notification also clarified that any salary raises an employee receives during their final year of service will not be included in the pension calculation. Furthermore, the government has revised the pension increment process for current pensioners, ensuring that family pensions will now be calculated based on the net pension amount.
It was further explained that the number of days worked in the month of retirement will be counted as a full month for pension purposes. Final-year increments will not factor into pension calculations, and family pensions will be determined based on net pension figures.
Pension system under increasing pressure
Pakistan’s pension system has been facing growing challenges in recent years, mirroring global trends. Rising life expectancy, lower birth rates, and evolving employment patterns have contributed to the strain on retirement schemes. According to the United Nations, the proportion of Pakistan’s population aged 60 and above is expected to double by 2050, highlighting the urgent need for a financially sustainable pension system.
Concerns over financial sustainability
Currently, Pakistan operates a pay-as-you-go pension model, which places significant pressure on government revenues. This has raised concerns that without proper reforms, the increasing pension burden could divert funds away from essential areas like healthcare, education, and infrastructure.
Recent data shows that pension spending in Pakistan has been growing at a rate of 25 per cent annually, outpacing the country’s GDP growth. Experts warn that if this trend continues, pension liabilities could account for over 50 per cent of government revenues by 2050, leaving little room for other critical spending needs.
Call for structural reforms
Provinces like Punjab are already feeling the pressure, with pension obligations consuming a large portion of provincial revenues. The national railway system reportedly spends around 70 per cent of its income on pension payments.
These alarming figures highlight the unsustainability of the current pension system and underscore the need for bold structural reforms, as repeatedly stressed by the International Monetary Fund.
