30% raise in salaries, 20% in pensions expected

The government is expected to increase the salaries of civil servants by up to 30% through ad hoc allowances and pensions by 20% in the upcoming federal budget for fiscal year 2023-24.

The Pay and Pension Commission has recommended the government to consider a 100% increase in medical and conveyance allowances for government employees along with a 10% increase in ad hoc allowances.

However, sources in the Regulation Wing of the Ministry of Finance revealed that three proposals regarding increases in salaries and pensions had been prepared, which would be presented in a special cabinet meeting chaired by Prime Minister Shehbaz Sharif. The final decision about the increments will be made during the meeting and then the chosen proposal will be presented to parliament along with the budget.

According to the sources, the first proposal suggests a 100% ad hoc increase in medical and conveyance allowances for employees, in line with the Pay and Pension Commission's recommendation. Additionally, a 10% increase in the allowance amount has been proposed. Retired employees might also see a 100% increase in medical allowances and a 10% increase in pensions.

The Pay and Pension Commission argues that accepting the proposal would not add to the government's pension bill, and the International Monetary Fund (IMF) would not object to it.

Further, the employees would experience significant relief.

The second proposal aims to raise the salaries of all government employees (grades one to 22) by 25%, along with increasing medical and conveyance allowances. The medical allowance for pensioners would also increase, accompanied by a 15% increment in pensions.

The third proposal under consideration suggests a 30% salary increase for employees (grades one to 16), and a 20% increase for officers of Grade 17 and above. Concurrently, a 50% increase in medical and conveyance allowances has been proposed, along with a 20% increment in pensioners' medical allowances.

In addition, proposals for increasing the pensions of Employees' Old-Age Benefits Institution (EOBI) pensioners and the minimum wage of workers are being considered.
While the Ministry of Finance acknowledges the reasonableness of the Pay and Pension Commission's recommendations, the final decision rests with the government.

The finance ministry sources explained that the commission's recommendations could not be implemented in the previous fiscal year due to a delay in the report's completion. This year, despite having the report in advance, implementation remains challenging due to the election being part of the budget, making it difficult to apply the commission's suggestions.
The commission's report highlights concerns over the high pension bill and the worries of financial institutions, including the IMF. As a solution, the commission suggests introducing a contributory or voluntary pension system for the newly recruited employees, instead of the old pension system.

Also read: Pakistan needs convincing budget for any chance of more cash: IMF

The sources revealed that a voluntary pension system had already been implemented for the government employees in Khyber-Pakhtunkhwa (K-P), and the Securities and Exchange Commission of Pakistan (SECP) approved four Voluntary Pension System (VPS) fund schemes for them.

The No Objection Certificates have been issued for Trust Deeds of Pension Fund Schemes, which will be offered to government employees in K-P by two pension fund managers. The Central Depository Company of Pakistan Limited will serve as the trustee for these funds. All adult Pakistanis with a Computerised National Identity Card (CNIC) can benefit from the VPS.

Under the Voluntary Pension System Rules, 2005, employees and self-employed individuals can contribute to VPS during their employment, ensuring a regular income after retirement.

The SECP emphasises that these new pension schemes will be funded through a combination of employee and government contributions. The funds will be managed by pension fund managers licensed by the SECP and registered with the K-P government.