Govt announces contributory model to ease rising pension liabilities

ISLAMABAD: The government has formally rolled out a new pension system for civil servants, marking a historic shift from the traditional, non-contributory model that has been in place for years.

According to a notification issued by the Ministry of Finance, the Federal Government Defined Contribution Pension Fund Scheme Rules, 2024 will now guide future pension entitlements of federal employees. The rules were circulated through a statutory notification, SRO 1728(I)/2025, dated August 27, 2025, and have been shared with all ministries, divisions and institutions for implementation.

A new model for pensions

The new framework replaces the older model where pensions were entirely funded by the state. Instead, it introduces a contributory structure where both employees and the government will put money aside each month into a dedicated pension fund.

Under the scheme, the government will contribute 12 percent of the pensionable pay of federal employees, while the employees themselves will put in 10 percent. These contributions will be invested, and the eventual pension benefits will depend on the returns generated by the fund.

For the armed forces, however, the process has yet to begin, and contributions remain at zero for both employers and employees for now.

Tackling ballooning pension liabilities

Officials said the reform aims to improve the sustainability of Pakistan’s pension system, which has been placing increasing pressure on public finances. Pension liabilities have been growing at a pace that the government describes as unsustainable, making reform critical.

By introducing a contributory model, authorities believe the burden on the national exchequer will ease over time, while also ensuring that pensions remain reliable for employees in the future. The move also brings Pakistan closer to international best practices in public sector financial management.

The notification has been circulated to the Auditor General of Pakistan, the Accountant General Pakistan Revenues, the State Bank of Pakistan, as well as all key ministries, including Defence, Education, Railways, Energy, IT and Climate Change, for immediate compliance.

Officials are calling it one of the most important financial reforms in recent years, one that could reshape how pensions are funded and managed for generations of federal employees to come.