Ministry of Finance has proposed some drastic changes for pension for retired public sector employees in a summary forwarded to the prime minister          

In this file photo, a woman in a face mask counts rupee notes as she walks on a street in Islamabad on April 9, 2020. Photo: AFP

October 18, 2023, ISLAMABAD: While granting an exemption to the defence and armed forces personnel, the Ministry of Finance has proposed some drastic changes for pension for retired public sector employees in a summary forwarded to the prime minister. 

It also recommended the adoption of calculation of pension on the basis of the last three years’ drawn salary against the existing formula for granting pension on the last drawn pay. It also recommended changing the commutation formula for payment of lump sum upfront amount at the time of retirement and proposed to be slashed to 25 percent and 75 percent payment in monthly instalments in subsequent years, instead of the existing formula of 35 percent at the time of retirement and then 65 percent in subsequent years of retirement.

Similarly, the pension to 3rd tier, such as unmarried/ divorced and widow daughters, was restricted to only 10 years instead of the existing practice of lifetime but the exemption will be available for Shuhada families up to 20 years and to disabled sons/ daughters for a lifetime.

In future, an increase in pension would be indexed with CPI (80 percent of the last three years) with a maximum 10 percent increase per annum. Early retirement will be discouraged and a minimum three percent and maximum 10 percent penalty will be admissible to the retiring individuals.

A top official of the Finance Ministry on Tuesday night told this correspondent that the pension reforms have not yet been notified. Under the titled “Pension Reforms” summary forwarded to the prime minister during the last PDM-led regime, only one pension is entitled. There will be an option available to select a higher one and surrender all others. Under the existing rules, multiple pensions are authorised to individuals in case of the death of a spouse/ children and father, if applicable. The families of Shuhada and those in service will not be affected.

For individuals if re-employed in the public sector, both the benefits including salary and pension will not be authorised by the federal government. The re-hired person will have to choose either salary or the pension. For Armed Forces personnel, both pension and pay will be admissible till the age of 60 years in case of re-employment in the public sector. The average retirement age in the armed forces are as under as for Grade 20, is around 50-52 years, for Grade 19, the retiring age is 46/48 years, for Grade 18 42/44 years and for soldiers, the retiring age is 38/40 years on average.

At the moment, every year the increase in pension is authorised on compounding effect, which means percentage increases are given on the last drawn pension. Now the ministry has proposed that an increase in pension will be given at the time of retirement.

The pension will be calculated on the basis of the last three years’ pay against the existing practice of granting pension on the basis of the last drawn salary at the time of retirement.

Pension will be given as a defined contributory model and the defined benefit model where all expenses are borne by the government will be abandoned. The summary stated that federal government employees shall be entitled to a gross pension based on 70 percent of average pensionable emoluments drawn during the last 36 months of service prior to retirement.

A government employee may opt for early retirement after putting in 25 years of service; however, the employee shall be liable to a penalty of three percent per year reduction in gross pension with effect from the retiring year till the age of superannuation.

Any increase in pension shall be granted on the pension calculated at the time of retirement. Each increase shall be maintained as a separate amount until the time the government decides to review and authorise any additional pensionary benefits.

A family pension, after the death or dis-entitlement of the spouse, shall only be admissible to remaining entitled family members for a maximum period of 10 years, and in the case of Shuhada Pension, the maximum period for entitled family members will be 20 years after the death or dis-entitlement of the spouse. In the case of disabled/special children of a pensioner, the family pension shall remain admissible for the life of such children.

Federal government employees shall have the option to commute a maximum of 25 percent of their gross pension at the time of retirement on the terms and conditions prescribed by the federal government. The pension in case of re-employment/ appointment after retirement, in an event where a pensioner of the federal government is re-employed/ appointed in public service after retirement whether on a regular/ contract basis or whatever mode of employment, the pensioner shall have the option to retain either’ pension or to draw the salary of said employment during the currency of that employment. In an event where a person becomes entitled to more than one pension, such person shall only be authorised to opt to draw one of the pensions. The percentage of annual pension increase would be equal to percentage of Consumer Price Index for that particular year provided that annual increase in pension for that particular year is not more than 10 percent. If the annual inflation above 10 percent, the federal government may authorise ad hoc relief for pensioners which shall stand abolished upon reduction of inflation to a normal level.