Starting July 1, 2025, a new pension system will be introduced for new civilian employees, ensuring that they save for their retirement through a contributory pension scheme. This decision comes after approval from the General Headquarters (GHQ) of the army. Along with this change, a Non-Banking Finance Company (NBFC) will be created to manage the contributions under the new system. The aim is to make sure that these new employees get the retirement benefits they deserve.
Let’s break it down into simpler parts:
1. Setting up the NBFC
A special company, the NBFC, will be responsible for handling the pension contributions. The company’s board will include senior government officials and experts:
- Imdad Ullah Bossal, Federal Secretary Finance
- Saad Fazal Abbasi, Additional Finance Secretary
- Aquil Raza Khoja, former GM of the Punjab Pension Fund
These individuals will guide the NBFC in managing the pension system. The NBFC is expected to start operations on July 1, 2025, with an initial budget of Rs. 1 million for operational costs.
2. Pension Reform Details
In a key development, the Economic Coordination Committee (ECC) reviewed pension reforms in June 2024. They decided to implement the new pension rules for federal government employees starting July 1, 2024. However, the military employees will move to the Defined Contributory System (DCS) from July 1, 2025.
3. Proposed Pension Changes
The government is also reviewing how pensions should be calculated. The key proposal is:
- Last 30 years salary for calculating pensions will be replaced by a new rule: 70% of the average salary over the last 36 months of service.
This will make pensions more predictable and manageable.
4. Early Retirement and Pension Reductions
Under the new system, employees might be allowed to retire after 25 years of service. However, their pensions will be reduced annually until they reach the official retirement age. This is an important change that will impact many employees.
5. Family Pensions
Family pensions are also being reformed:
- Standard family pensions may only last for 10 years after the death of a spouse.
- However, Shuhada Pensions (for families of fallen soldiers) will be extended to 20 years.
- Disabled children of pensioners will receive pensions for life, ensuring they are taken care of.
6. Changes in Commuted Pensions
The maximum amount that employees can commute (convert to a lump sum) from their pension is being reduced from 35% to 25%. This means retiring employees will get a smaller upfront payment but a bigger monthly pension.
Summary Table of Key Pension Changes
| Pension Reform | Old System | New System (Post-2025) |
|---|---|---|
| Pension Scheme Type | Traditional Pension System | Contributory Pension System |
| Pension Fund Management | Government directly manages pensions | Managed by Non-Banking Finance Company (NBFC) |
| Pension Calculation | Based on last 30 years of salary | Based on 70% of average salary in last 36 months |
| Retirement Age | 60 years | No change |
| Early Retirement Option | Not allowed | Available after 25 years of service, with pension reduction |
| Family Pensions | Lasts until spouse’s death | 10 years for most, 20 years for Shuhada pensions |
| Commuted Pension | 35% can be commuted | 25% can be commuted |
Summary
These pension reforms are a big change, especially for new civil servants. The government wants to ensure that employees have a more sustainable and fair pension system in place. The introduction of the NBFC will provide better management of contributions, and the pension calculation will become more transparent. These changes are designed to reduce the government’s pension liabilities while still providing fair benefits to the employees.
If you’re a government employee, these changes will impact you in the future, so it’s important to understand how the new system will work. The goal is to create a fairer, more manageable system that works for both employees and the government.
