IT is, indeed, a worrying conundrum. The federal government’s annual pension burden now exceeds its fiscal space for national development. In other words, Pakistan is paying out more to retired civil servants and armed forces personnel than it is spending on developing its physical and social infrastructure, basic services and public utilities. Pensions have become a tightening noose around our prospects for economic growth, human development and social uplift, which is why, after many years, we are finally seeing tangible measures to contain the pension bill. “We had to stop the bleeding,” Finance Minister Muhammad Aurangzeb explained at a seminar on Tuesday as he spoke about the new Defined Contribution Pension Scheme that took effect at the start of the outgoing fiscal year. He seemed clear about the urgency for reforms, describing them as a “fundamental question of macroeconomic sustainability”. In April, the government had also put an end to ex-civil servants drawing both salaries and pensions in case they were rehired after retirement. However, some key hurdles remain. The contributory pension scheme and rules preventing ‘double-dipping’ still do not apply to retired armed forces personnel, whose pensions account for around three-fourths of the total bill.

Despite an earlier notification stating that the contributory pension scheme would apply to armed forces personnel from July this year, the measure has been delayed without explanation. Many armed forces personnel also retire at an earlier age than civil servants, meaning they draw pensions for a much longer period of their life. As pointed out by the finance minister last Saturday to the Senate Standing Committee on Finance, this represents a significant burden on the federal budget. Such retirees can often find gainful employment elsewhere, yet the government continues to pay out pensions without assessing their need. It is also questionable why the introduced pension reforms have not been made applicable more extensively instead of just on new hires. Surely, better results could be expected if more pensioners were subject to them. Similarly, defects have been pointed out in the latest steps regarding pensions. For example, though Mr Aurangzeb in his speech exempted pensioners above the age of 70 from being taxed on large pensions, it has been pointed out that the Finance Bill 2025 provides for no such exemption. The finance minister must address these points with clarity.

Published in Dawn, June 19th, 2025