In line with the latest pension reforms for retired civil servants and military employees, the federal government was assured to save Rs. 1.7 trillion over the next 10 years (Rs. 170 billion/year).
As a result, the Finance Ministry says: “Considering a cumulative reduction in the pension bill to Rs. 3.1 trillion from Rs. 4.8 trillion within the next 10 years”.
In The Current Financial Year, the pension budget is Rs. 1.04 trillion, while Rs. 662 billion are for military pensions. Without the reforms, the pension bill would need around 10 trillion rupees to pay pensioners growing at an annual average of 16 percent. After reforms, it declines to about 7 trillion rupees.
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Pension Reforms include abolishing multiple pensions; changing the base of calculation from the last drawn salary to the average of salaries in the last two years; and stopping the practice of compounding annual increases in pension. Future annual increases in pensions would be on the basis of 80 percent of the average inflation rate of the last two years.
Other major measures are that family pensions will be paid for a period of 10 years after the retired pensioner dies in ordinary cases and for a maximum of 25 years under special family pension cases.
These reforms will save Rs. 83 billion this year alone, with saving expected to reach Rs. 1.7 trillion by FY35.