Govt takes shine off pension benefits

Notifications issued to discontinue multiple pensions

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ISLAMABAD:

The government on Wednesday drastically reduced pension benefits of retired civil and armed forces personnel aimed at containing a growing pension bill, which has already swelled over Rs1 trillion—the fourth largest expense in the budget.

The Ministry of Finance on Wednesday issued three separate notifications to discontinue multiple pensions, reducing both the first home take pension and also lowering the base for determining future increase in pensions. The changes will not be applicable to people who have already retired, except in cases where multiple pensions are paid.

It also ended annual compounding of the pension and any increase would be treated separately from the base pension—in a concept that is similar to the ad-hoc salary increase that is not made part of the basic salary to avoid compounding.

Instead of taking pension on the basis of the last drawn salary, the new pensioner will get pension based on the average salary of the last two years. The two pensions by one person either civilian or the military have been discontinued.

The changes will take effect from January 1 and will be applicable to both the retired civil and military personnel. Many serving federal government employees, who are taking salary and pension, would also be affected by the changes.

The finance ministry's notifications stated that the changes in the pension rules have been made on the basis of recommendations given by a commission constituted by the government of former prime minister Imran Khan in 2020.

For the current fiscal year, the government has allocated Rs1.014 trillion in the budget for paying pensions and its lions share, as 66% or Rs662 billion has been allocated for the military pensions. There is an increase of 24% in the pension bill compared to the last year, which is funded from the budget and is not sustainable.

After these changes, it is expected that in the next decade the pension bill would significantly reduce and will become manageable.

After debt servicing, defense and development, the pension is the fourth largest expenditure in the budget. It may become the third biggest expense, if the government decides to further reduce the development budget of Rs1.1 trillion.

According to the Ministry of Finance's notification, on the recommendations of Pay and Pension Commission of 2020, "it has been decided that henceforth, in an event where a person becomes entitled to more than one pensions, such person shall only be authorized to opt to draw one of the pensions".

"Where an in-service federal government employee becomes entitled to a pension, such federal government employee shall not be eligible to receive such pension", reads the notification.

However, the in-service or pensioner spouse will be eligible for pension of his or her spouse in addition to his or her own pay or pension.

The finance ministry stated that all the existing instructions on the multiple pensions shall stand amended with immediate effect.

Pension emoluments

According to another notification, it has been decided that "henceforth, pension shall be calculated on the basis of average of pensionable emoluments drawn during last 24 months of service prior to retirement". The new instructions are applicable on the people retiring from January 1st. Currently, the pension was decided based on the last drawn salary.

Pension Increase

According to the third notification, the Finance Ministry has changed the methodology for future increase in pension.

With immediate effect, the net pension will be decided by excluding the impact of commuted pension, which has substantially reduced the benefits. The pensioner was entitled to claim commutation equal to 30% of the salary and for the period of seven and half years. He can still claim commutation but that amount will be excluded from the base pension.

"The net pension (defined as) -gross pension less commuted portion of pension- calculated at the time of retirement will be termed as baseline pension".

Any further increase in pension shall be granted on baseline pension, reads the notification.

In an instruction that will significantly reduce the monthly pension, the notification reads "each increase (in pension) shall be maintained as a separate amount until the time, the federal government decides to review and authorize any additional pensionary benefits".

As per the decision, the baseline pension will be reviewed by Pay and Pension Committee after every 3 years.

But the current pension of existing pensioners on the date of issuance of this office memorandum shall be considered as baseline pension, according to the notification. Also, the baseline pension is deemed to include restored commuted portion of pension as and when restored, it added.