Economic Coordination Committee green-lights major pension reforms – Business

• Changes effective for civilians from July 1, armed forces from next year
• Gross pension to be based on 70pc of salary in last two years of service
• Ordinary Family Pension to apply for 10 years, for life in case of children with special needs
• ‘Rehired’ retirees can either retain pension or salary

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Thursday approved major changes to the federal government’s pension system, set to be notified on July 1 after formal endorsement of the federal cabinet.

The ECC, presided over by Finance Minister Muhammad Aurangzeb, also sanctioned nearly Rs500 billion in technical and supplementary grants just two days before the close of the fiscal year 2023-24.

The committee also decided to relaunch the “Risk Coverage Scheme for SMEs” and approved a Ministry of IT summary to return Rs11.13bn to the Universal Service Fund (USF) to address the budget shortfall.

Informed sources said the changes to the pension scheme for civilians would come into force on July 1, while its application to the armed forces would follow with effect from the subsequent fiscal year, i.e. 2025-26.

“The ECC also gave in-principle approval to the Finance Division for the establishment of a Pension Fund. The committee also approved the proposal of Defined Contributory Scheme for the new entrants with effect from July 1, 2024, and for armed forces from July 1, 2025,” an official statement said.

The summary, seen by Dawn, suggests that many of the changes to the pension scheme had already been announced in the previous year’s budget by the then finance minister, Ishaq Dar, but remained unimplemented.

“Amendments to the pension scheme were also accordingly announced in the budget speech for the financial year 2023-24,” said the summary, moved by the Ministry of Finance without an explanation about its non-implementation.

It said the changes were in line with recommendations of the Pay and Pension Commission of 2020 for amendments to the pension scheme for existing pensioners and employees to curtail future increase in pension costs without compromising on the government’s pension philosophy.

The finance ministry claimed that under Civil Service Regulations, the federal government had the powers and the “right of changing the provisions in these regulations regarding pay, allowance, leave and pension, from time to time at its discretion, and of interpreting in case of dispute”.

Draft rules seen by Dawn suggest that to calculate gross pension, federal government employees will be entitled to a gross pension based on 70 per cent of average pensionable emoluments drawn during the last 24 months of service prior to retirement. There would be penalties for voluntary retirement.

“A federal government employee may opt for retirement after putting in 25 years of service; however, the employee shall be liable to a flat reduction rate of 3pc per year in gross pension based on the number of completed months from the date of retirement to the date of superannuation,” the rules said.

Such a flat reduction in gross pension will be capped at 20pc. However, this penalty would apply in cases of voluntary retir­ement for the armed and civil armed forces only if retirement is sought or granted before the prescribed rank service.

For future pension increase methodology, the net pension calculated at the time of retirement will be termed the baseline pension, and any increase in pension will be granted on the baseline pension. Each increase will be maintained as a separate amount unless the federal government decides to review and authorise any additional pensionary benefits.

Also, the baseline pension will be reviewed by a pay and pension committee after every three years, provided that the current pension of existing pensioners on the date of issuance of these amendments will be considered as baseline pension and provided further that baseline pension is deemed to include restored commuted portion of pension as and when restored.

Ordinary Family Pension, after the death or ineligibility of the spouse, will be admissible to remaining entitled family members for a maximum of 10 years. However, in the case of the pensioner’s special children or children with disability, the Ordinary Family Pension will remain admissible for the entire life of such children. In the case of the entitled children, the family pension will remain admissible for 10 years or until the age of 21 years, whichever is later.

Moreover, Special Family Pension, after the death or ineligibility of the spouse or first recipient, will be admissible to remaining entitled family members for 25 years after the death or ineligibility of spouse or first recipient. In case of disabled or special children, this pension will remain admissible for life.

“The rate of such pension for eligible recipients is enhanced to 50pc of last-drawn pension admissible to the first recipient for all ranks of armed forces/civil armed forces without minimum or maximum limits and transferable to all eligible heirs as per order prescribed in Rule 12 of Pension Regulations Vol-1 (Armed Forces), 2010,” the rules said.

In an event where a pensioner of the federal government, after the age of 50 years, is rehired in public service after retirement whether on a regulator or contract basis or whatsoever mode of employment, the pensioner will have the option to retain either pension or to draw the salary during that employment period.

Published in Dawn, June 28th, 2024