ISLAMABAD: The federal government has rolled out the Contributory Pension Scheme for public servants, introducing a major change to the existing pension system.
Under the new rules, federal employees will contribute 10% of their salaries toward their pension fund, while the government will add another 12%, bringing the total contribution to 22%.
This scheme replaces the old pension model for all recruits, as per the Federal Government Defined Contribution (FGDC) Pension Fund Scheme Rules 2024, issued by the Finance Ministry’s Regulation Department under the Public Finance Management Act 2019.
The system will be governed by the Voluntary Pension System Rules 2005 and the Non-Banking Finance Companies and Notified Entities Regulations 2008. It replaces the August 2024 version, which had set the government’s contribution at 20%.
The new policy applies to civil servants hired on or after July 1, 2024, including civil defence staff. For the armed forces, the same framework will come into effect from July 1, 2025, pending final approval.
To support the scheme, the government has allocated Rs10 billion for FY 2024–25 and Rs4.3 billion for FY 2025–26.
The reform, introduced on the advice of the IMF and World Bank, aims to ease the growing fiscal pressure caused by pensions, which are projected to cost Rs1.05 trillion this year, a 29% rise from last year.
Existing employees will not be affected. The new scheme shifts from a defined benefit model to a defined contribution system, ensuring more sustainable pension funding for future government staff.
Authorized pension fund managers will oversee the investments, while the Accountant General’s Office will manage deposits, records, and fund transfers.
Employees will be allowed to withdraw up to 25% of their savings upon retirement, with the remaining amount invested for 20 years or until age 80.
The Finance Ministry will engage fund managers with digital payment systems and provide insurance coverage in cases of death or disability.
A non-banking finance company (NBFC) will supervise the implementation and monitoring of the scheme.