• Retired public servants re-employed must choose either pension or salary
• Condition applies to both contract, regular re-employment after age 60
• Move aims to curb rising pension costs under IMF requirements
• Govt pension bill estimated at over Rs1tr in current fiscal year

ISLAMABAD: The federal government has formally notified that retired public servants rejoining government service, whether on a contract or regular basis, will now have to choose between drawing a salary or receiving their pension and may no longer claim both simultaneously.

“It has been decided that henceforth, in an event where a pensioner of the federal government after the age of 60 years, is reemployed/appointed in public service after retirement whether on regular/contract or whatsoever 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,” said a notification issued by the regulation wing of the Ministry of Finance.

Earlier, rehired government employees used to avail of the salary of the incumbent employment, whether on contract or regular, and pension simultaneously — and in some cases, multiple pensions. This not only had an additional financial burden on the government exchequer but also hampered the career progression of other employees.

The latest measure is part of pension reforms the government has taken in hand to contain ever-increasing pension liabilities, a key requirement of the IMF programme.

The measure was initially announced by the then finance minister Ishaq Dar in the 2022-23 budget, but it could not be implemented until reannounced by Finance Minister Muhammad Aurangzeb in last year’s budget before the IMF signed off a new programme.

One of the key decisions of these reforms — a contributory pension scheme for armed forces personnel — may be further delayed until 2026 despite a notification for its implementation with effect from June 2025, according to sources.

In September last year, the government notified the introduction of a contributory fund scheme for new entrants in the civil government and armed forces. In a notification, the Ministry of Finance said last year that federal government employees would contribute 10 per cent of their respective basic pay while the government would contribute 20pc of the basic pay of the employees.

According to the Sept 3, 2024, notification, the scheme would apply to civil servants joining after July 1, 2024, and armed forces personnel appointed after July 1, 2025. The government has allocated Rs10 billion for the pension fund in the 2024-25 budget.

The scheme had been introduced on the advice of the international lending agencies, particularly the World Bank, to contain rising pension liabilities described as a “ticking bomb”. The new scheme does not apply to existing employees. The government believes the contribution pension fund would slow down the growth in pension liabilities in future budgets.

The federal government’s total expenditure for pensions has been estimated at Rs1.014 trillion for the current fiscal year, up from Rs821bn in FY24, up by almost 24pc in a single year. This included pension liabilities of the armed forces at Rs662bn for the current fiscal year, up from Rs563bn, showing an increase of about 18pc.

On the other hand, the pension expenditure of civilians has been budgeted at Rs220bn for the current year against Rs228bn last year, a reduction of 3.5pc.

Subsequently, in January this year, the government notified further pension reforms, including abolishing multiple pensions and shifting future pensionable benefit calculations to an average of the past 24 months of salaries instead of the last pay drawn before retirement.

It had been notified that “in the 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”.

This was subject to the provision that “where a federal government employee becomes entitled to a pension, such federal government employee shall not be eligible to receive such pension”.

However, certain quarters were still pushing for a salary for re-employment and one pension.

Published in Dawn, April 28th, 2025