Government Cuts Pension Benefits to Tackle Soaring Costs
In a bid to curb the growing pension bill, the government has announced drastic changes to pension benefits for retired civil and military personnel. The new government pension cuts will significantly reduce pension payouts, aiming to manage the ever-increasing pension costs, which now exceed Rs1 trillion – making it one of the largest budgetary expenses.
Key Changes to Pension Rules
The Ministry of Finance has issued three notifications introducing major reforms to the pension system. Starting January 1, new pensioners will have their pensions calculated based on the average salary of the last two years of service, rather than the last drawn salary. Additionally, individuals receiving multiple pensions will now be limited to one pension only.
The government has also discontinued annual pension compounding, meaning any future pension increases will be treated separately, similar to ad-hoc salary increases, rather than being added to the base pension.
Impact on Retirees and Active Employees
These changes will only apply to future retirees, with current pensioners remaining unaffected unless they receive multiple pensions. However, federal government employees who are both salaried and pensioned will also be impacted by these reforms.
The move is part of the recommendations made by the Pay and Pension Commission of 2020 and aims to reduce the pension burden over the next decade.
Government’s Efforts to Manage Budget Deficit
The pension bill, now the fourth largest expense in the national budget, has been rising unsustainably. In 2024, Rs662 billion, or 66% of the total pension budget, will be allocated for military pensions. These reforms are expected to ease the financial strain and make the pension system more manageable in the long term.
By making these changes, the government hopes to bring the pension bill under control and redirect funds to other critical areas.
Pension Benefits to Tackle Soaring Costs
In a bid to curb the growing pension bill, the government has announced drastic changes to pension benefits for retired civil and military personnel. The new government pension cuts will significantly reduce pension payouts, aiming to manage the ever-increasing pension costs, which now exceed Rs1 trillion – making it one of the largest budgetary expenses.
Key Changes to Pension Rules
The Ministry of Finance has issued three notifications introducing major reforms to the pension system. Starting January 1, new pensioners will have their pensions calculated based on the average salary of the last two years of service, rather than the last drawn salary. Additionally, individuals receiving multiple pensions will now be limited to one pension only.
The government has also discontinued annual pension compounding, meaning any future pension increases will be treated separately, similar to ad-hoc salary increases, rather than being added to the base pension.
Impact on Retirees and Active Employees
These changes will only apply to future retirees, with current pensioners remaining unaffected unless they receive multiple pensions. However, federal government employees who are both salaried and pensioned will also be impacted by these reforms.
The move is part of the recommendations made by the Pay and Pension Commission of 2020 and aims to reduce the pension burden over the next decade.
Government’s Efforts to Manage Budget Deficit
The pension bill, now the fourth largest expense in the national budget, has been rising unsustainably. In 2024, Rs662 billion, or 66% of the total pension budget, will be allocated for military pensions. These reforms are expected to ease the financial strain and make the pension system more manageable in the long term.
By making these changes, the government hopes to bring the pension bill under control and redirect funds to other critical areas.
