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 trillionthe 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 pensionin 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.
