Pension reforms — finally

Pakistan implements sweeping pension reforms to reduce the Rs1 trillion pension bill, easing fiscal pressure.

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It's official. The government has finally notified sweeping pension reforms aimed at curbing Pakistan's ballooning pension bill, which has crossed Rs1 trillion. With pensions ranked as the fourth largest expense in the national budget, this long-overdue initiative is expected to relieve tremendous pressure on the country's strained finances.

The reforms, effective from January 1, 2025 and applicable to civilian and military retirees alike, will discontinue multiple pensions for individuals; reduce the basis for calculating future increases; and switch pension calculations from the last drawn salary to an average of receipts over the last two years of service. Serving federal employees who simultaneously draw salaries and pensions will also be affected, addressing a longstanding inefficiency in the system. Critics argue that such measures should have been implemented years ago, as pension costs have grown unsustainably, increasing by 24% over the last year alone. Military pensions, which account for 66% of the Rs1.014 trillion pension allocation, have particularly strained the budget. The elimination of dual pensions and compounding increases is expected to bring long-term relief. While the reforms will not affect current retirees except in cases of multiple pensions, the changes are expected to significantly reduce future pension payouts by ending compounding increases and introducing a "baseline pension" system.

For an economy battling rising inflation and soaring debt, this reform is undoubtedly a step in the right direction - though it may come at a social cost. Retiring civil and military personnel will need to adapt to reduced benefits, and the government must ensure that inflation-adjusted allowances and periodic reviews are in place to prevent financial strain on future retirees. With Pakistan's pension system finally undergoing much-needed restructuring, the hope is that this bold step will pave the way for a more sustainable and balanced economic future.