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Federal Government Approves Overhaul of Pension System, Effective July 1

The Economic Coordination Committee (ECC) of the Cabinet recently approved significant revisions to the federal government’s pension system, slated to be officially implemented on July 1 following formal endorsement by the federal cabinet.

Chaired by Finance Minister Muhammad Aurangzeb, the ECC also authorized nearly Rs500 billion in technical and supplementary grants just before the fiscal year 2023-24 concluded. Additionally, the committee decided to reintroduce the “Risk Coverage Scheme for SMEs” and agreed to return Rs11.13 billion to the Universal Service Fund (USF) to address budgetary shortfalls.

Changes to the civilian pension scheme are set to take effect on July 1, with application to the armed forces scheduled for the subsequent fiscal year, starting in 2025-26. The ECC granted preliminary approval to the Finance Division for establishing a Pension Fund and endorsed a Defined Contributory Scheme for new entrants, effective July 1, 2024, and for the armed forces from July 1, 2025.

According to the summary reviewed by Dawn, many of the pension scheme amendments were previously announced in the budget speech for the fiscal year 2023-24 but had not been implemented. These amendments align with recommendations from the Pay and Pension Commission of 2020 aimed at controlling future pension costs while maintaining the government’s pension philosophy.

Under the proposed rules, federal government employees would receive a gross pension based on 70% of average pensionable emoluments drawn during the last 24 months of service. There are provisions for penalties for voluntary retirement, with a flat reduction rate of 3% per year in gross pension capped at 20%.

Future increases in pension will be calculated based on a baseline pension established at the time of retirement, subject to review by a pay and pension committee every three years. Family pensions, both Ordinary and Special, will be provided for specific durations or for life, depending on the circumstances of the pensioner’s family members.

Overall, these adjustments aim to streamline pension regulations and manage pension liabilities effectively across federal government employees and armed forces.

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