Govt to Save Rs. 170 Billion Per Year After Latest Pension Reforms

The federal government is expected to save Rs. 1.7 trillion over the next decade (Rs. 170 billion/year) due to the latest pension reforms for retired civil servants and military personnel. The Finance Ministry estimates that the pension bill will now be reduced to Rs. 3.1 trillion from Rs. 4.8 trillion in next 10 years. For the current fiscal year, the pension budget is Rs. 1.04 trillion, with Rs. 662 billion allocated for military pensions. Without the reforms, the pension bill would have grown at an annual average rate of 16 percent to Rs. 10 trillion for paying off pensioners. Post-reforms, this value will decline to Rs. 7 trillion. The pension reforms also include ending multiple pensions, altering the calculation basis from the last drawn salary to the average of the last two years’ salaries, and discontinuing compounding annual pension increases. Future annual pension hikes will now be tied to 80 percent of the average inflation rate for the past two years. Other key measures include limiting family pensions to 10 years after the pensioner’s death for ordinary pensions and 25 years for special family pensions. This year alone, the new reforms will save Rs. 83 billion, with savings expected to reach Rs. 1.7 trillion by FY35.