The federal government has introduced a new contributory pension fund scheme to address the rapidly increasing pension burden, which has climbed to Rs10.55 trillion in 2025–26.

According to a notification issued by the Ministry of Finance, the reform seeks to make the pension system more sustainable and reduce fiscal pressure on the national budget.

The new contributory pension scheme will apply to all federal employees recruited after July 1, 2024, replacing the traditional pension model.

Under the new framework, 22% of an employee’s salary will be contributed to the pension fund — 10% by the employee and 12% by the government.

The fund will be managed by a non-banking finance company (NBFC) to be established under the Finance Ministry’s supervision. Officials said this system is designed to mirror international contributory pension models, encouraging savings discipline and ensuring financial security for future retirees.

The new scheme will only apply to newly recruited employees and not to existing government staff. For the armed forces, implementation is expected to begin from July 1, 2025.

To kickstart the initiative, the government has allocated Rs10 billion for the establishment of the new pension fund.

Withdrawal policy and post-retirement benefits

The Finance Ministry clarified that employees cannot withdraw funds before retirement. Upon retirement, they will be allowed to withdraw up to 25% of their accumulated balance, while the remaining 75% will be converted into a monthly pension providing continuous income after retirement.

Officials said the policy was formulated with the guidance of international financial institutions, including the World Bank, as part of Pakistan’s ongoing fiscal reform agenda.

Rising pension liabilities a major concern

The Ministry noted that pension liabilities have become one of the largest components of current expenditures. In the ongoing fiscal year, total liabilities reached Rs1.055 trillion, including Rs742 billion for the armed forces and Rs243 billion for civil servants.

Over the past ten years, the pension bill has grown sharply — from Rs421 billion to over Rs10 trillion, posing a serious challenge to fiscal stability.

A senior Finance Ministry official said the reform aims to secure the financial future of public employees while protecting the national budget from unsustainable liabilities.

“The new contributory pension model ensures a fair balance between government support and employee responsibility, aligning Pakistan’s system with global standards,” the official added.