Pakistan adopts new contributory federal pension scheme to curb rising liabilities

ISLAMABAD: The federal government of Pakistan has formally adopted the Federal Government Defined Contribution Pension Fund Scheme Rules 2024, which is a change from the traditional non-contributory pension model to the contributory framework under SRO 1728(I)/2025.

The notification, dated August 27, 2025, was circulated to ministries and federal agencies for immediate implementation. Under the new rules, the future pension entitlements of federal employees will be determined with the cooperation of both the employer and the employee.

For civilian federal staff, the employer will contribute 12% of the pensionable salary, and the employee will contribute 10%. The scheme is yet to be implemented for the armed forces, where the contribution is currently zero.

Sources said the reforms are designed to reduce fiscal pressure and improve the long-term sustainability of the pension system. Contributions from all parties will be pooled into a waqf fund, and investment profits will determine the final pension payments.

The change marks one of the most consequential reforms in Pakistan’s public financial management in years, as the rising pension liabilities became difficult to bear under the old system.

The notification has been sent to the Auditor General of Pakistan (AGR), Accountant General of Pakistan Revenue (AGPR), State Bank of Pakistan (SBP) and all relevant ministries including Defence, Education, Railways, Energy, IT, Climate Change to align operations with the new scheme.

Pension liabilities have been on the rise in Pakistan recently. In FY25, the federal pension bill (including military pensions) crossed Rs. 1 trillion, making it one of the top recurring expenditures and putting increasing pressure on the national budget.

The reforms are part of Pakistan’s commitment to reduce unsustainable liabilities and promote financial stability under the IMF program.