PESHAWAR – The government of Khyber Pakhtunkhwa has announced a strategic shift to a fully funded contributory pension scheme, aiming to complete the transition by 2045 in an effort to reduce long-term fiscal burdens and modernize the province’s pension system.
The reform, already in effect for civil servants appointed on or after June 7, 2022, replaces the traditional defined benefit system with a defined contribution model. Under the new system, both the employee and the government contribute monthly to a dedicated pension account, which is managed by licensed fund managers regulated by the Securities and Exchange Commission of Pakistan (SECP).
At the time of retirement, civil servants enrolled in the scheme will receive a lump-sum payout comprising the total contributions and investment returns, in place of monthly pension disbursements. Employees will also be eligible for interest-free advances from their pension savings before retirement, under specific conditions.
The move comes in response to rising pension liabilities in the province. In the fiscal year 2003–04, the pension bill stood at Rs 878 million—less than one percent of the budget. By 2023–24, it had surged to Rs 132 billion, accounting for over 12 percent of the provincial budget. Actuarial studies have warned that without systemic reform, the pension burden would continue to grow at an unsustainable rate.
To implement the new scheme, the provincial government has appointed 12 authorized pension fund managers responsible for investing and managing individual employee pension accounts. Strict controls have been established to prevent misuse of the funds, and contributors will retain ownership of their savings.
While the reform promises long-term financial relief for the government and increased ownership for employees over their retirement funds, it has sparked concern among some government workers. Critics argue that the shift introduces exposure to market risks and may not provide the same level of stability as the previous system. The government has clarified that the changes apply only to new employees and that current pensioners and their dependents will continue to receive benefits under the existing framework.
Khyber Pakhtunkhwa is the first province in Pakistan to implement such a comprehensive pension reform. Its model may serve as a potential blueprint for other provinces and the federal government, both of which are grappling with mounting pension costs.
The full transition to the funded scheme is expected to be completed by 2045, gradually shifting the province to a financially sustainable pension system that aligns with international best practices.
Reported by PakTribune News Desk
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