Based on the notification released by the Ministry of Finance in Pakistan, the above reform measures greatly offer pension reforms for retired officials of the country. The reforms aim at keeping a check on the rising pension liabilities and imposition of fiscal discipline.
As per the new regulation, retired employees would not be allowed to draw a salary along with the pension if they rejoin any organization. Pension will be lost permanently with immediate effect. However, if the spouse of the retiree continues to work, the retiree will continue receiving the pension until he/she retires.
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The method of calculating pension also changed. From now on, the pension will be calculated on the average salary drawn during the last 24 months of employment. Annual increases in the pension will be based on this new calculation method, which might lead to a reduced amount of pension for many retirees.
These reforms were recommended by the Pay and Pension Commission, which aims at reducing the government’s annual pension expenditure. The Ministry of Finance has already informed the IMF regarding these reforms and that they are part of the measures taken to save the country’s economy from direction.
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Previously, in the budget for the 2024-25 fiscal year, a 25% increase was announced in the ad-hoc relief allowance for employees in grades 1-16 while a 20% increase was given to employees in grades 17-22. An increase of 15% in federal pensions was also announced.
For the government, these reforms are an integral part of fiscal sustainability, but the employee unions and even retired personnel are likely to criticize the reforms. Long-term implications will depend on the implementation and public acceptance of these changes.