Govt Establishes Firm to Oversee Contributory Pension Scheme for New Civil Servants

The government had approved the introduction of a contributory pension system for new entrants into the civilian workforce starting July 1, 2025, following an endorsement from the Army’s General Headquarters (GHQ). To manage the contributions under this new system, a Non-Banking Finance Company (NBFC) will be established, with operations set to begin on the same date. According to a report by a national daily, the NBFC’s initial board of directors will include Federal Secretary Finance Imdad Ullah Bossal, Additional Finance Secretary Saad Fazal Abbasi, and Aquil Raza Khoja, a former general manager of the Punjab Pension Fund. Aquil Khoja is expected to serve as an independent director, while Ms. Nasheeta Mariyam Mohsin, Special Secretary Finance, is likely to be appointed as the company’s Chief Executive Officer (CEO) in compliance with NBFC Regulations 2008. The government has allocated Rs. 1 million to cover the initial operational expenses of the NBFC. The Economic Coordination Committee (ECC) of the cabinet reviewed the Finance Division’s proposal for pension reforms on June 13, 2024. After consultations with the Finance and Law and Justice Divisions, the ECC approved the implementation of the new pension rules for federal government employees starting July 1, 2024. However, employees of the armed forces will transition to the Defined Contributory System (DCS) from July 1, 2025, as per GHQ’s approval. The ECC also instructed the Finance Division to present the findings of the Pay and Pension Commission (PPC-2020). Officials clarified that there is currently no proposal to lower the retirement age for federal employees from 60 to 55 years. The PPC-2020 was tasked with reviewing the existing pension system and recommending changes to reduce future pension costs while maintaining the government’s commitment to its pension philosophy. Among the proposed changes is a shift in the calculation of gross pensions. Instead of basing pensions on the last 30 years of salary, the new formula would calculate pensions as 70% of the average pensionable emoluments earned during the final 36 months of service. This proposal is still under consideration. Additionally, employees may be allowed to retire early after completing 25 years of service, but their pensions would be subject to annual reductions until they reach the official retirement age. Pension increases would be calculated based on the amount at the time of retirement, with each increase treated as a separate adjustment. Changes to family pensions are also being discussed. Under the proposed rules, family pensions may be limited to a maximum of 10 years after the death or disqualification of the spouse. However, in the case of Shuhada Pensions, the entitlement period for family members would extend to 20 years. Disabled or special-needs children of pensioners would continue to receive family pensions for their lifetime. The government is also considering reducing the maximum commutable portion of pensions from 35% to 25%. This would allow retiring employees to commute a smaller portion of their gross pension, subject to terms set by the federal government.