Govt introduces significant pension reforms to reduce burden

Practice of dual financial benefits effectively ended

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KARACHI:

The federal government has introduced significant pension reforms as part of the Budget 2025-26, aiming to rationalise public spending and reduce the growing fiscal burden posed by the existing pension system.

Unveiling the budget 2025-26 in the National Assembly on Tuesday, Finance Minister Muhammad Aurangzeb announced that retired public servants rejoining government service will now be required to choose between their pension or the new salary, effectively ending the practice of dual financial benefits.

Among the new measures, the government has also imposed a 5% tax on high-income pensioners — defined as those under the age of 70 with an annual pension exceeding Rs10 million. However, the minister clarified that low and middle-income pensioners will remain exempt from this tax.

The duration of family pensions has been capped at 10 years following the death of the pensioner's spouse, and multiple pensions will no longer be allowed.

Aurangzeb said that for decades, successive administrations had amended the pension system through executive orders, resulting in a disproportionate burden on the national exchequer. The current reforms, he said, aim to streamline the pension structure and align future increases with the Consumer Price Index (CPI) to ensure sustainability.

He further stated that premature retirements will be discouraged under the new policy framework, reinforcing the government's commitment to a financially viable pension system.