The federal government has officially launched a major pension reform, replacing the old pension system for new recruits with a contributory pension scheme. Under the new rules, federal employees hired on or after July 1, 2024, must contribute 10% of their basic salary, while the government will contribute 12%. This change brings the total contribution to 22%, aligning with global financial recommendations—particularly from the World Bank.
The Finance Ministry has issued the Federal Government Defined Contribution Pension Fund Scheme Rules, 2024, under the Public Finance Management Act, 2019. These new rules replace the August 2024 order that initially set the government’s share at 20%. The system will be regulated under Voluntary Pension System Rules, 2005 and the Non-Banking Finance Companies Regulations, 2008. Armed forces will shift to this scheme starting July 1, 2025, though implementation is still pending.
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To support the transition, the government allocated Rs10 billion in the 2024–25 budget and Rs4.3 billion for 2025–26. The reform is aimed at easing the rising financial burden of pensions, which the government sees as a serious fiscal risk. Existing employees will stay under the old system. For context, pension spending is projected to hit Rs1.005 trillion in 2024–25, up 29% from the previous year.
Under the new scheme, only licensed pension fund managers will operate the funds. The Accountant General’s office will manage contributions and records, ensuring both employee and employer shares are deposited before salary disbursement. Employees cannot withdraw pension funds before retirement. Upon retirement, they may withdraw up to 25% of the amount, while the rest must remain invested under Voluntary Pension Rules, until they complete 20 years of service or reach 80 years of age.
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The Finance Ministry will oversee fund management, sign contracts with eligible pension fund managers, and ensure electronic transfers and insurance coverage for cases of death or disability. A dedicated Non-Banking Finance Company (NBFC) will be established to supervise the scheme, acting as a temporary operator until it is formally set up. Overall, this marks a major shift from the traditional defined-benefit model to a more sustainable defined-contribution system, aimed at securing future retirements.