The government has instituted a new pension program.

The federal government has formally instituted the Contributory Pension Scheme for public officials, signifying a significant overhaul in the pension system.

According to the revised Contributory Pension Fund Scheme Rules, federal employees are required to deposit 10% of their salary to their pension fund in order to receive a 12% contribution from the government, resulting in a total contribution of 22%.

This program supersedes the previous pension system for newly hired employees, and the Finance Ministry’s Regulation Department has promulgated the Federal Government Defined Contribution (FGDC) Pension Fund Scheme Rules.

2024, established pursuant to the Public Finance Management Act of 2019.

The program will be governed by the Voluntary Pension System Rules 2005 and the Non-Banking Finance Companies and Notified Entities Regulations 2008, superseding the August 2024 regulations that established the government’s contribution at 20%.

The new regulations pertain to civil servants hired on or after July 1, 2024, include individuals in civil defence. The regulations for military personnel will become effective on July 1, 2025, but their implementation remains pending.

The government designated Rs10 billion for FY 2024-25 and Rs4.3 billion for FY 2025-26 to sustain the system, implemented based on the recommendations of the International Monetary Fund (IMF) and the World Bank to alleviate the escalating fiscal burden of pensions.

Existing personnel will remain unaffected. The change seeks to mitigate the escalating pension spending, projected at Rs1.05 trillion for 2024-25, representing a 29% increase from the previous year.

According to the new regulations, sanctioned pension fund managers would oversee the fund. The office of the Accountant General of Pakistan will manage deposits, maintain records, and facilitate transfers.

Employees are prohibited from withdrawing funds prior to retirement; upon retirement, they may withdraw up to 25%, while the remaining balance will be invested for 20 years or until the age of 80.

The Finance Ministry will engage pension fund managers to facilitate electronic transfer methods and guarantee insurance coverage for death or disability. A non-banking finance company (NBFC) will manage the deployment and oversight of the system.

This signifies a significant transition from the defined benefit model to a defined contribution system, intended to enhance financial sustainability and improve retirement security for future government employees.