Contribution-Based Pension Scheme Pakistan 2025 – Govt Pension Reform Explained
The Government of Pakistan has rolled out a Contribution-Based Pension Scheme Pakistan in 2025, replacing the decades-old non-contributory pension system. Under this reform, both the government (employer) and federal employees will contribute a fixed percentage of their salaries to a dedicated pension fund. This fund will be professionally managed, and the investment returns will determine the final pension payouts.
This major change comes through the Federal Government Defined Contribution Pension Fund Scheme Rules, 2024, notified under SRO 1728(I)/2025. The reform is not just an administrative update — it represents a structural shift in Pakistan’s financial management, aiming to reduce fiscal pressure, improve sustainability, and align with global best practices.
Why the Reform Was Introduced
For years, Pakistan has struggled with mounting pension liabilities. The government had been fully funding pensions from the national budget, which became unsustainable.
- In FY25, pension liabilities crossed Rs. 1 trillion, making it one of the top recurring expenses.
- A large portion of this amount was spent on military and civil pensions.
- The system was becoming fiscally unsustainable, with no link between contributions and payouts.
The new contribution-based pension scheme was designed to:
- Share responsibility between the government and employees.
- Reduce the ever-growing burden on the national budget.
- Ensure transparency and sustainability in the pension system.
- Meet conditions of the IMF programme, which demanded pension reforms for fiscal discipline.
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Key Features of the Contribution-Based Pension Scheme 2025
The scheme introduces clear contribution ratios, fund pooling, and investment mechanisms.
| Feature | Old Pension System | New Contribution Scheme 2025 |
|---|---|---|
| Model | Non-contributory (Govt paid full) | Defined contribution (Govt + Employee) |
| Employer Contribution | None | 12% of pensionable pay |
| Employee Contribution | None | 10% of pensionable pay |
| Military Pensions | Included | Currently exempt (0% contribution) |
| Fund Management | No separate fund | Dedicated pension fund, invested |
| Payout Basis | Fixed entitlement from Govt | Based on contributions + investment returns |
This table clearly shows how the burden has shifted from taxpayers to a shared responsibility between employees and the government.
How the Scheme Works
- Monthly Contributions – Every month, 12% from the employer and 10% from the employee will be deposited.
- Pension Fund – The money goes into a dedicated fund, managed by professional institutions.
- Investment Returns – The fund is invested in secure instruments like bonds, securities, and savings accounts.
- Pension Payouts – At retirement, the payout will depend on the employee’s total contributions + accumulated returns.
This makes pensions investment-linked, unlike the previous guaranteed government payouts.
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Benefits of the New Pension Scheme
- Fiscal Sustainability
- Reduces the government’s annual pension burden.
- Helps Pakistan manage public debt and meet IMF conditions.
- Transparency & Accountability
- Pensions tied to actual contributions.
- Clear tracking of contributions and returns.
- Employee Ownership
- Employees will have a sense of security, knowing their money is invested.
- Long-term returns can be higher than fixed payouts.
- Encourages Savings Culture
- Promotes retirement planning.
- Aligns with private-sector practices.
Challenges and Concerns
While the reform is promising, there are also concerns:
- Initial Resistance – Employees may resist mandatory salary deductions.
- Military Exemption – Currently, the armed forces are exempt, creating a two-tier system.
- Fund Management Risks – If not properly managed, investments may underperform.
- Transition Issues – Employees close to retirement may face uncertainty.
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Who Will Be Affected?
- Civilian Federal Employees: Immediate implementation with 12% employer + 10% employee contributions.
- New Recruits: Will automatically fall under the contributory system.
- Military Personnel: Still under the old system (for now).
- Provincial Employees: Provinces may adopt similar reforms in coming years.
IMF and International Context
The reform is also part of Pakistan’s IMF structural commitments. Many countries have already moved from defined-benefit (DB) to defined-contribution (DC) pension systems.
Examples include:
- India: National Pension System (NPS) for government employees.
- Malaysia: EPF (Employees Provident Fund).
- Turkey & Nigeria: Contributory pension models.
Pakistan is aligning with this global trend to avoid fiscal collapse under pension obligations.
Government Notification and Implementation
The notification has been sent to:
- Auditor General of Pakistan (AGP)
- Accountant General of Pakistan Revenues (AGPR)
- State Bank of Pakistan (SBP)
- Federal ministries (Defence, Education, Railways, IT, Climate Change, etc.)
All departments are required to adjust payroll systems and deduct contributions from September 2025 onwards.
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Frequently Asked Questions (FAQs) about Contribution-Based Pension Scheme 2025:
1. What is the new Contribution-Based Pension Scheme?
It is a pension reform where both government and employees contribute to a pension fund, replacing the old non-contributory model.
2. How much will I contribute as an employee?
Employees will contribute 10% of their pensionable pay, matched with 12% from the government.
3. Does this apply to military pensions?
No, the armed forces are currently exempt from contributions (0%).
4. Will my pension be guaranteed?
No, your pension will depend on contributions plus investment returns, not a fixed government payout.
5. When will the scheme start?
The scheme is already in effect from october 27, 2025, as per government notification.
6. Does this affect existing retirees?
No, it applies to current and future employees, not those already retired.
7. What if the pension fund underperforms?
Returns may vary, but the government aims to ensure secure fund management.
8. Will provinces follow this system?
Likely yes, as provincial pension bills are also growing unsustainably.
9. Is this linked to IMF conditions?
Yes, it is part of Pakistan’s IMF commitments to reduce unsustainable fiscal liabilities.
10. What happens to my past service under the old scheme?
Past service will remain under the old rules, while future service will count under the new contributory scheme.
Conclusion – Contribution-Based Pension Scheme Pakistan 2025
The Contribution-Based Pension Scheme 2025 marks a historic shift in Pakistan’s financial governance. By sharing the burden between the employer and employees, the government hopes to reduce the pension bill, promote savings, and align with global pension systems.
However, the real success of this reform will depend on effective fund management, transparency, and employee trust. If implemented properly, it could secure Pakistan’s fiscal stability and ensure a sustainable retirement system for future generations.
