Karachi:
The federal government has introduced significant pension reforms as part of the budget 2025-26 with the aim of rationalizing public spending and reducing the growing fiscal burden of the existing pension system.
By revealing the budget 2025-26 in the National Assembly on Tuesday, Finance Minister Muhammad Aurangzeb announced that retired public employees participating in government service will now choose between their pension or the new salary, which effectively finishes the practice of dual financial benefits.
Among the new measures, the government has also introduced a 5% tax on high-income pensioners-defined as those under 70 with an annual pension exceeding RS10 million. However, the Minister clarified that low and middle-income pensioners will remain exempt from this tax.
The duration of family pensions has been uncovered 10 years after the pensioner’s spouse, and several pensions will no longer be allowed.
Aurangzeb said that successive administrations had changed the pension system through executive orders for decades, resulting in a disproportionate burden on national tax. The current reforms, he said, aims to streamline the pension structure and adjust the future increases with the consumer price index (CPI) to ensure sustainability.
He also said that early retirement will be deterred by the new political framework, which strengthens the government’s obligation to an economic viable pension system.
