Khyber Pakhtunkhwa (KP) is the first province in the country to have successfully rolled out a fully funded pension scheme for its employees, becoming a front-runner in pension reforms. KP’s new pension scheme applies to all government employees joining from June 2022 and will be funded through a combination of employee and government contributions, ensuring future fiscal sustainability. The ballooning pension expense has been on the national & provincial governments’ radar since the early 2000s due to the exponential rise in pension liabilities and their unsustainable nature. However, actual reforms remained evasive for nearly two decades due to the high political costs associated with the reform. In KP alone, the gravity of pension liabilities set in only when the Government of KP (GoKP) acknowledged two critical findings in 2020; a) Pension & salary expenditure will outgrow total provincial receipts by 2027 – Meaning that after accounting for salaries and pensions, the government will have no money left for any development project or service delivery, including primary functions such as health and education b) GoKP’s existing legacy pension system is unsustainable – The total Accrued Actuarial Pension Liability as of June 2020 stood at a staggering 3 Trillion rupees while the pension fund rested at 54 Billion rupees. The ballooning pension expense has been on the national & provincial governments’ radar since the early 2000s due to the exponential rise in pension liabilities and their unsustainable nature. However, actual reforms remained evasive for nearly two decades due to the high political costs associated with the reform. Once it became apparent that the pension balloon was about to burst, not in a decade or two, but in the next five years, the Government of KP introduced a Defined Contribution Pension Scheme (DCS), bringing nearly 9,000 of its newly hired employees under the scheme. This is a critically important reform that will prevent the fiscal disaster that has long been in the making and set precedence for other provinces and the federal government. The reform took GoKP less than two years to implement, and the process they followed could serve as a working model for other governments. In 2020, the Government of Khyber Pakhtunkhwa commissioned an actuarial study to determine its total liabilities and funding requirements for the existing pension scheme. In the same year, GoKP initiated advocacy for pension reforms through various development partners and policy institutes. GoKP officially announced its transition towards a contributory provident scheme in the annual budget FY 2021-22 and mobilized technical experts through the Foreign, Commonwealth & Development Office’s support to develop a full-fledged strategy to shift from the current legacy pension scheme to a defined-contribution pension scheme. Following the recommendations of the strategy, GoKP pursued amendments in the SECP’s Voluntary Pension System (VPS) Rules 2005 to leverage the existing pension model and notified the Provident Fund Rules 2022 to govern its new pension scheme. The primary functions of the scheme are outsourced to professionals and industry experts to improve the pension fund’s income-generating capacity. All SECP registered Fund Managers can enter a contract with the government to manage its fund, allowing the new scheme to leverage the technical expertise of professionals with relevant experience in investment banking, public finance & risk management. Various safeguards have also been put in place to minimize risks for employees, such as a maximum exposure limit for investment in high-risk sub-funds and insurance in case of death or permanent disability of the employee before attaining retirement age. However, since DCS is only applicable to new employees, KP will require further reforms, including devising lucrative voluntary pension scheme options that will encourage employees on the older pension scheme to opt for the new scheme voluntarily. While this may take some time to implement, KP estimates that the transition to the new pension scheme alone will save the province 700 billion rupees by 2049. The responsibility to safeguard the employees’ pensions and the government’s responsibility towards all citizens rests upon fiscal sustainability. If the rising pension expense was left unchecked, the government risked reneging on this very responsibility. KP’s Defined Contribution Pension Scheme is a triumph towards sustainable public finance management and an exceptional model for the federal & provincial governments to replicate. The author is an Associate with Sustainable Energy & Economic Development Programme.