ISLAMABAD:
The government on Wednesday slashed pension benefits for retired civil and armed forces personnel in a bid to contain a growing pension bill, which has already crossed Rs 1 trillion, the fourth biggest expenditure in the budget.
The Ministry of Finance on Wednesday issued three separate notifications to suspend multiple pensions, reducing both the first residence pension and the basis for determining future pension increases. The changes will not apply to people who have already retired, except in cases where multiple pensions are paid.
It also put an end to the annual capitalization of the pension and any increase would be treated separately from the base pension, in a concept similar to the ad hoc salary increase that is not part of the basic salary to avoid capitalization.
Instead of receiving a pension based on the last salary received, the new pensioner will receive a pension based on the average salary of the last two years. The two pensions for a person, whether civilian or military, have been eliminated.
The changes will come into effect from January 1 and will apply to both civilian and retired military personnel. Many active federal government employees, who receive salaries and pensions, would also be affected by the changes.
The Finance Ministry notifications stated that the changes in pension rules were made based on recommendations given by a commission constituted by former Prime Minister Imran Khan’s government in 2020.
For the current fiscal year, the government has allocated Rs 1,014 trillion in the budget to pay pensions and most of it, while 66% or Rs 662 billion has been allocated for military pensions. There is a 24% increase in the pension bill compared to last year, which is funded from the budget and is not sustainable.
After these changes, it is expected that in the next decade the pension bill will be significantly reduced and manageable.
After debt service, defense and development, pensions are the fourth largest expense in the budget. It may become the third largest expenditure if the government decides to further reduce the Rs 1.1 trillion development budget.
According to the Ministry of Finance notification, following the recommendations of the Wages and Pension Commission of 2020, “it has been decided that henceforth, in case a person becomes entitled to more than one pension, such person will only be authorized to choose to collect one of the pensions”.
“Where a serving federal government employee is entitled to pension, such federal government employee shall not be entitled to receive such pension,” the notification reads.
However, the serving or pensioned spouse will be entitled to his or her spouse’s pension in addition to his or her own salary or pension.
The Finance Ministry stated that all existing instructions on multiple pensions will be amended with immediate effect.
Pension emoluments
According to another notification, it has been decided that “henceforth, pension will be calculated on the basis of average pensionable emoluments earned during the last 24 months of service before retirement.” The new instructions apply to people retiring on or after January 1. Currently, the pension was decided based on the last salary received.
Pension increase
According to the third notification, the Ministry of Finance has changed the methodology for the future increase in pensions.
With immediate effect, the net pension will be decided excluding the impact of the commuted pension, which has substantially reduced benefits. The pensioner had the right to claim a commutation equivalent to 30% of the salary and for a period of seven and a half years. You can still claim commutation, but that amount will be excluded from the basic pension.
“The net pension (defined as) – gross pension minus the commuted portion of the pension – calculated at the time of retirement shall be called the base pension.”
Any further increase in pension will be granted on the basis of pension, the notification said.
In an instruction that will significantly reduce the monthly pension, the notice says: “each increase (in the pension) will be maintained as a separate amount until such time as the federal government decides to review and authorize any additional pension benefits.”
According to the decision, the basic pension will be reviewed by the Salaries and Pensions Committee every three years.
But the current pension of existing pensioners on the date of issuance of this office memorandum will be considered as base pension, according to the notification. In addition, the basic pension is considered to include the restored commuted portion of the pension as it is restored, it added.
