The federal government has started a new Contributory Pension Scheme for public servants. This is a big change in how government pensions will work in Pakistan. The goal is to make the pension system stronger, fair, and more sustainable for future employees.
Earlier, all government workers received pensions under the old system, where the government paid the full amount after retirement. But the cost of these pensions has increased every year and has become a heavy burden on the national budget. The new system will help balance government spending and still protect the future of employees.
This new plan is called the Federal Government Defined Contribution (FGDC) Pension Fund Scheme, and it follows the Public Finance Management Act 2019. It officially started for civil employees on July 1, 2024, and for armed forces personnel, it will start from July 1, 2025.
Purpose of the New Pension Scheme
The new pension plan was created because the old system was becoming too expensive. The government’s annual pension cost reached around Rs1.05 trillion for 2024–25, which is almost 29% higher than the previous year.
To solve this issue, the Finance Ministry and International Monetary Fund (IMF), along with the World Bank, worked together on a new model. This model follows international standards where both employees and employers contribute to the pension fund.
This means the pension is no longer only the government’s responsibility. Instead, employees will also contribute a part of their income each month to secure their future.
Key Features of the New Pension Scheme
Here are the main features of the new Contributory Pension Scheme:
- The scheme applies to all civil employees recruited on or after July 1, 2024.
- Old employees will not be affected. They will continue to receive pensions under the old system.
- Employees will contribute 10% of their monthly salary to the pension fund.
- The government will contribute 12%, making a total of 22% contribution every month.
- The fund will be managed by authorized Pension Fund Managers under the Voluntary Pension System Rules 2005 and NBFC Regulations 2008.
- Employees cannot withdraw funds before retirement.
- At the time of retirement, employees can withdraw up to 25% of their total savings in cash.
- The remaining 75% will be invested and paid out monthly over 20 years or until the employee reaches age 80.
- The Accountant General of Pakistan will manage the fund’s deposits and records.
Example of Pension Contribution Calculation
Let’s take a real-life example to understand how this new pension system works.
Example:
Suppose an employee joins a federal government department in July 2024 with a basic salary of Rs100,000 per month.
Here’s how the contribution will be made each month:
| Contributor | Percentage | Monthly Contribution |
|---|---|---|
| Employee | 10% | Rs10,000 |
| Government | 12% | Rs12,000 |
| Total Monthly Contribution | 22% | Rs22,000 |
This means every month, Rs22,000 will go into the employee’s pension fund.
Now, let’s see how it grows over time.
If the employee continues to work for 30 years, the total contribution (without interest or profit) will be:
Rs22,000 × 12 months × 30 years = Rs7,920,000 (Rs7.92 million)
However, this amount will not stay the same. The Pension Fund Managers will invest this money in safe financial instruments such as government bonds or mutual funds. These investments will generate yearly returns.
Assuming an average annual profit of 8%, the total value of the pension fund after 30 years could reach around Rs24 million to Rs27 million.
When the employee retires, they can withdraw 25% (around Rs6 million) in cash. The remaining Rs18–21 million will be invested further to provide monthly pension payments for 20 years.
This makes the new pension system both transparent and financially stable for employees.
How It Differs from the Old Pension System
| Old Pension System | New Contributory Pension Scheme |
|---|---|
| Fully funded by the government | Joint contribution by employee (10%) and government (12%) |
| Lifetime payments even after retirement | Limited to 20 years or age 80 |
| No investment of funds | Funds are invested for growth |
| Increasing burden on the national budget | Reduces long-term fiscal pressure |
| Only available for old employees | Applies to new recruits after July 1, 2024 |
This shows that the new pension plan is modern, transparent, and less risky for the country’s finances.
Financial Support from the Government
The federal government has already set aside funds to make this system work smoothly.
- Rs10 billion has been allocated for the 2024–25 fiscal year.
- Rs4.3 billion will be allocated for the 2025–26 fiscal year.
These funds will help launch the system, cover administrative expenses, and ensure that fund management remains stable during the initial years.
The government also plans to provide insurance coverage in case of death or disability of employees. If an employee dies before retirement, their family will receive the accumulated funds or the insured amount.
Who Will Manage the Pension Funds
The management of this fund will be handled by professional and licensed companies called Pension Fund Managers (PFMs).
These managers will be chosen by the Finance Ministry through a transparent process. Their responsibilities include:
- Collecting monthly contributions.
- Investing funds in safe and approved financial assets.
- Maintaining employee records.
- Providing regular updates to employees.
- Ensuring that funds are transferred electronically and safely.
The Non-Banking Finance Company (NBFC) will act as the overall supervisor to ensure compliance and transparency.
How Employees Can Check and Manage Their Pension Fund
Every government employee under this scheme will have an individual pension account. The system will likely include an online dashboard where employees can:
- View their total contributions.
- Check government contributions.
- See profit or investment performance.
- Download statements for official use.
This will make the pension system transparent and reduce corruption and delays that were common under the old paper-based process.
Benefits of the New Pension Scheme
Here are the major benefits for employees and the government:
For Employees:
- Better retirement security through investment growth.
- Personal control over savings and contributions.
- Transparent record of deposits and profits.
- Insurance coverage in case of death or disability.
- Option to withdraw 25% lump sum at retirement.
For the Government:
- Reduction in long-term pension expenses.
- More predictable financial planning.
- Reduced fiscal pressure on the national budget.
- Compliance with IMF and World Bank recommendations.
Who Is Affected
- New Employees: All new civil employees joining after July 1, 2024, will automatically fall under the new scheme.
- Current Employees: Those already working before July 2024 will continue under the old pension system.
- Armed Forces: The new rules for military personnel will be implemented from July 1, 2025.
This transition ensures that no current employee’s pension rights are affected while moving towards a sustainable model for new recruits.
Challenges Ahead
While this scheme offers long-term benefits, a few challenges remain:
- Awareness and Training: Employees must understand how the system works and how their money is managed.
- Transparency: The Finance Ministry must ensure that fund managers follow strict investment rules.
- Timely Reporting: Employees should get monthly or quarterly reports about their accounts.
- Inflation Adjustment: Pension amounts must grow with inflation to protect retirees’ purchasing power.
The government is aware of these concerns and plans to address them through digital platforms and clear guidelines.
Expert Opinion
Financial experts believe this is a major step toward reforming Pakistan’s pension structure. The defined contribution model helps balance risks between the employee and the government.
Experts also say that this will reduce corruption, improve financial discipline, and make public finance more predictable.
The Federal Government Contributory Pension Scheme is a new chapter in Pakistan’s pension history. It promotes shared responsibility, investment-based growth, and financial security for future employees.
By contributing 10% of their salary, employees secure a 12% matching contribution from the government. This creates a reliable retirement fund that grows over time through investments.
While current employees remain under the old system, this reform ensures the future pension system is strong, transparent, and sustainable.
With proper implementation, the new scheme will not only protect the future of government workers but also ease the burden on the national economy. It’s a forward-looking move that promises stability and financial safety for Pakistan’s next generation of public servants.