THE government announced on Friday that federal employees will contribute 10 per cent of their pensionable pay to qualify for a 12pc contribution from the public exchequer under the newly formalized contributory pension fund scheme.
The total contribution rate will thus be 22pc, replacing the traditional pension system for new entrants.
Given the alarming rise in pension-related expenditures — now estimated at Rs1.055 trillion for 2024–25, up nearly 29 per cent from Rs821 billion in 2023–24 — pension reforms were not only necessary but long overdue. Clearly, the fiscal space for the old model no longer exists. The shift to a contributory system — now a global standard — should be welcomed. It introduces financial discipline, transparency and long-term sustainability. Contributions are clearly tracked, with employee salary slips set to show detailed breakdowns of both employee and employer shares along with accumulated balances. Fund management is to be handled by authorized Pension Fund Managers under the watch of a Non-Banking Finance Company (NBFC), ensuring professional oversight and regulatory compliance. However, while these structural and financial improvements are commendable, the human dimension of pension reform must not be overlooked. One concerning feature of the new rules is the post-retirement disbursement mechanism. Retired employees may withdraw only up to 25 per cent of their accumulated pension balance upon retirement. The remaining 75 per cent is mandated to be invested under the Voluntary Pension System Rules 2002, with the requirement that it generate monthly payments for 20 years or until the employee turns 80 whichever comes first. This means that monthly pension payments may cease at age 80, regardless of whether the retiree or their spouse is still alive. In a country where healthcare costs rise sharply in old age, and where elderly citizens often have no other source of income, such a system risks becoming harshly inadequate. For many retirees, these pension payments are their final financial lifeline — crucial not only for daily expenses but for medical care and end-of-life dignity. The government must therefore revisit this limitation with compassion and realism. The pension fund must be structured in a way that offers lifetime income support. This would align with the basic purpose of pensions: to provide security in old age, not to expose retirees to financial anxiety in their most vulnerable years.
