ISLAMABAD:
The federal government has officially implemented the Contributory Pension Scheme for public servants, marking a major reform in the pension system.
Under the new Contributory Pension Fund Scheme Rules, federal employees will now contribute 10% of their salary towards their pension fund to qualify for a 12% government contribution, making the total contribution 22%.
This scheme replaces the old pension system for newly recruited employees and the Finance Ministry’s Regulation Department has issued the Federal Government Defined Contribution (FGDC) Pension Fund Scheme Rules
2024, formulated under the Public Finance Management Act 2019.
The scheme will be regulated under the Voluntary Pension System Rules 2005 and Non-Banking Finance Companies and Notified Entities Regulations 2008, replacing the August 2024 rules that had set the government’s contribution at 20%.
The new rules apply to civil employees recruited on or after July 1, 2024, including those in civil defence. The rules for armed forces personnel will take effect from July 1, 2025 but are still pending implementation.
The government allocated Rs10 billion for FY 2024-25 and Rs4.3 billion for FY 2025-26 to support the system, which has been introduced on the recommendations of the International Monetary Fund (IMF) and the World Bank to reduce the growing fiscal burden of pensions.
Current employees will not be affected. However, the reform aims to slow the rising pension expenditure, estimated at Rs1.05 trillion for 2024-25, up 29% from last year.
Under the new rules, authorized pension fund managers will manage the fund. The Accountant General of Pakistan office will handle deposits, recordkeeping, and transfers.
Employees will not be allowed to withdraw funds before retirement; upon retirement, they may withdraw up to 25%, with the rest invested for 20 years or until age 80.
The Finance Ministry will contract pension fund managers supporting electronic transfer systems and ensure insurance coverage in case of death or disability. A non-banking finance company (NBFC) will oversee the system’s implementation and monitoring.
This marks a major shift from the defined benefit model to a defined contribution system — aimed at financial sustainability and better retirement security for future government employees.
