A Mounting Fiscal Challenge
Pakistan’s pension system has reached a critical juncture. According to recent budget figures, the government will spend over one trillion rupees on pensions this year — a tenfold increase from just a decade ago. What was once a manageable expense has now become a fiscal burden rivaling development spending, straining an already fragile economy.
The promise of lifetime benefits to every retired civil servant and member of the armed forces has ballooned into an unsustainable financial obligation. Now, under pressure from international lenders and domestic economic realities, the government is taking long-overdue steps toward reform.
Introducing the Defined Contribution Pension Scheme
To address this growing challenge, Islamabad has introduced the Federal Government Defined Contribution Pension Fund Scheme, a landmark shift from the traditional pension model. This new system will apply to fresh entrants joining government service, linking their retirement benefits to actual contributions rather than open-ended state guarantees.
Under the new rules, employees will contribute 10% of their pensionable salary, while the government will match with 12%. These funds will accumulate in personal pension accounts, providing future retirees with benefits tied to their savings rather than unfunded state promises.
This reform represents a move toward fiscal responsibility, ensuring that the system becomes sustainable in the long term.
A Gradual Shift, Not a Quick Fix
For current government employees and retirees, the traditional defined-benefit structure remains unchanged. The reform is forward-looking, intended to contain future liabilities rather than rewrite existing commitments.
However, experts caution that this is damage control rather than a full solution. Pension expenditures have surged nearly 30% in just two years, with military pensions projected to hit Rs742 billion in 2025–26, while civilian pensions will cost Rs243 billion.
The Road Ahead: Reform or Repetition?
The key question is not whether reforms have begun, but whether Pakistan can implement them with consistency and discipline. Political will, administrative efficiency, and fiscal transparency will determine if these measures truly curb the pension crisis or merely delay it.
If executed effectively, the reforms could mark a turning point in Pakistan’s public finance management, ensuring stability and fairness for future generations.
