ISLAMABAD (Kashmir English): The federal government has proposed major changes in the existing pension system in the Budget 2025–26, aiming to rationalise public spending and reduce the growing fiscal burden posed by the pension system in vogue.
The duration of family pensions has been capped at 10 years after the death of the spouse, and receiving multiple pensions will no longer be permitted.
The pension system reforms also include government efforts to discourage premature retirement, multiple pensions, as it proposes 5% on high-income pensioners.
Choose between new salary or pension
Unveiling the Budget in the National Assembly, finance minister Muhammad Aurangzeb announced that retired public servants rejoining government service will now be required to choose between their new salary or pension, effectively ending the practice of dual financial benefits.
The government has also proposed in the budget to impose a 5% tax on high-income pensioners — defined as those under the age of 70 with an annual pension exceeding Rs10 million.
However, the finance minister clarified that low- and middle-income pensioners will remain exempt from this tax.
The finance minister said that for decades, successive administrations had amended the pension system through executive orders, resulting in a disproportionate burden on the national exchequer.
He said the current reforms aim to streamline the pension structure and align future increases with the Consumer Price Index (CPI) to ensure sustainability.
