Pakistan govt considers new pension mechanism to tackle inflation

ISLAMABAD: The government of Pakistan is likely to scrap the one-time increase in pensions for retired government employees, according to the sources. Instead, pensions will be adjusted according to the inflation ratio over two years.

Under the new mechanism, pensions are expected to increase by 80% in line with the two-year inflation rate. This initiative comes after a 15% increase in pensions was announced in the current financial year’s budget.

In addition, the move aims to control inflation, which is targeted to be brought down to single digits in the next financial year.

The new pension system is also expected to reduce the growing pension bill, which currently stands at Rs 1014 billion for the current financial year.

The Pay and Pension Commission 2020 proposed increasing pensions in proportion to inflation, with the central bank providing the necessary inflation data.

Moreover, the new mechanism is expected to ensure a more sustainable and inflation-adjusted pension system for retired government employees.

Earlier, in a major reform, the finance ministry issued the office order regarding three key amendments to the pension rules on the recommendation of the Pay and Pension Commission 2020.

According to the documents, the federal government has limited the family pension to 10 years after the death of the retired employee whereas if the pensioner dies, only legal heirs will be eligible to receive the pension transfer, and providing lifelong pensions for disabled children of deceased pensioners.