Islamabad, Jan 5: The federal government’s recent pension reforms are set to result in savings of Rs. 1.7 trillion over the next decade, approximately Rs. 170 billion per year, primarily by adjusting the pension system for retired civil servants and military personnel.
Impact on Pension Bill
The reforms will reduce the overall pension bill from Rs. 4.8 trillion to Rs. 3.1 trillion. For the current fiscal year, the pension budget is Rs. 1.04 trillion, with Rs. 662 billion allocated for military pensions. Without these reforms, the pension liabilities were projected to grow at an annual average rate of 16%, potentially reaching Rs. 10 trillion. Post-reform, this figure will be limited to Rs. 7 trillion, offering significant fiscal relief.
Key Changes in the Pension System
The reforms involve several crucial changes:
- Ending multiple pensions.
- Recalculating pensions based on the average of the last two years’ salaries, instead of the last drawn salary.
- Discontinuing compounding of annual pension increases. Instead, future hikes will be tied to 80% of the average inflation rate for the past two years.
- Limiting family pensions to 10 years after the pensioner’s death for ordinary pensions, and 25 years for special family pensions.
These changes will bring immediate fiscal savings, with an estimated Rs. 83 billion saved this year alone, and a total of Rs. 1.7 trillion by FY35.
