Federal and Punjab Governments to Implement New Pension System by July

The federal and Punjab governments are collaborating with the Securities Exchange Commission of Pakistan (SECP) to introduce a voluntary pension scheme (VPS) for their employees by July 1, 2024, according to official sources.

Authorities are currently developing a VPS to replace the existing traditional pension system for both federal and Punjab government employees, effective July 1. The Ministry of Finance has worked closely with the SECP to design the new system.

The VPS has long been a priority outlined by the International Monetary Fund (IMF) for Pakistan, aimed at improving financial management. The scheme, already operational in Khyber Pakhtunkhwa, allows employers in both the public and private sectors to make fully funded pension contributions to their employees. SECP officials indicated that the scheme could be extended to all newly recruited provincial employees in the fiscal year 2024-25.

Abdul Rehman Warraich, Commissioner of SECP, highlighted the significance of pension reforms, emphasizing their importance for both government personnel and the private sector.

The federal government’s pension expenditure rose to Rs. 480 billion in 2021, with an unfunded liability of approximately Rs. 3 trillion. Similarly, provincial governments have seen substantial increases in pension costs, from Rs. 75 billion in 2011 to Rs. 500 billion in 2020.

These reforms aim to enhance inclusivity by allowing non-resident Pakistanis to save for retirement in the country, aligning Pakistan with international pension solutions such as the 401(k) retirement plans in the US.

Employees under the new scheme will continue to receive pension benefits even when changing jobs. Currently, there are 43 operational pension funds in the country with a total investment of Rs. 61 billion. Khyber Pakhtunkhwa initiated investments in pension funds two years ago, with 21 funds dedicated to government employees.

Building on these efforts, the federal and Punjab governments are planning to launch their own VPS, in line with IMF directives to control pension costs.

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